The value or the economic worth of any national currency is arguably the marketing worth or value to the users or spenders of such currency whether in a micro or a macro economy.
Somebody, who obviously lacks the knowledge of the interplay of currencies in an economic space, once asked, if it was impossible for the Nigerian government to, by fiat, peg the exchange rate of a naira at par with that of a dollar, the pound or euro. And I laughed off my sleeves.
Were it to be within the might of any government to determine the exchange rate of its currency, trust the managers of Nigerian currency, they would have even claimed a naira is mightier than a dollar, pound, and even, the two added together.
Financial experts have persistently counseled against the practice of multiple exchange rates because it causes hyper-inflation. So, in a desperate attempt to unify the exchange rates in the country, Nigeria has repeatedly weakened the naira against the dollar on the official market. Forex traders said it could be a move by the Central Bank of Nigeria to embrace a new regime of multiple exchange rates’ unification.
Having traded within a band of 380 and 381 to the dollar for over a year, the naira recently hit a record low of 419.75 against the dollar, and then closed at 411.25 on the over-the-counter (OTC) spot market.
While the central bank did not comment on the development, there is no quote available on the naira official rate. The currency was further weakened on the black market. One currency trader in a major bank noted that the central bank seemed to be saying that the (OTC) spot rate would be the official rate, as it remains the arena for the largest volumes of trade. One does not have to be a financial expert to appreciate the negative effects of operating multiple currency regimes. No, the situation has prompted calls from the World Bank to unify the exchange rates to attract investment.
Rising demand for the dollar has put enormous pressure on the naira due to a seamless out flux of the providers of foreign exchange, offshore investors for instance, especially after the COVID-19-pandemic triggered fall in global oil prices.
Over the years, the central bank has tried to unify the rates and boost the dollar supply through direct interventions, without political sincerity. It revised the futures rate on the naira upwards in April to ease pressure on the currency after quoting the 150-day futures contract at N435.81, in its first Dollar sales to foreign investors this year.
While the central bank is due to hold its interest rate setting meeting by the end of June, Nigerians look forward to better days for the naira against other mightier currencies. The devaluation of the naira brings down the standard of living of Nigerians, because, as the rate of inflation rises, the purchasing power reduces. The people will buy fewer items with more money, as they struggle to remain afloat in a skewed economy.