Our national currency, the Naira has this week further depreciated at the parallel market, against the United States dollar. While it traded at N197 to one US Dollar, it sold at N265 to the dollar at the parallel market yesterday afternoon. This comes against the recorded N244 to a dollar two weeks ago. The exchange rates for the Euro and Pounds are far higher. Foreign exchange ( Forex) traders have attributed this depreciation to lack of sufficient dollar quantities at the market.
These are happening despite efforts by the Central Bank of Nigeria, CBN Governor Godwin Emefiele and his team to save the Naira. Key players in the banking and financial sector of the economy as well as manufacturers, have all expressed their discontent with the present situation. Analysts have deliberated on the logical basis behind the current value of the Naira amidst the incessant fall in oil prices and the CBN’s currency controls. However while the general conclusion is that none of this is working, the CBN would beg to differ.
CBN governor has continued to defend his currency controls as he remains resolute that the Naira is “appropriately priced” with a prospect of rebounding positively soon.
For countries whose exchange rates are linked to either dollar or a basket of major currencies, breaking those ties would raise the odds of inflation accelerating too fast. It would also take away a steadying influence on their economies.
“Countries operating with a currency peg, particularly oil exporters, are suffering from losing export earnings, weakening their ability to defend the peg at a time when emerging-market currencies are under pressure from a stronger dollar,” the chief economist at London-based frontier- markets specialist Exotix Limited, Stuart Culverhouse said, adding that the situation magnifies the problems they’re having.
Oil and natural gas account for at least 85 percent of the exports of Saudi Arabia, Nigeria and Venezuela, while Russian energy sales account for more than half the government’s revenue, according to the United State Energy Information Administration.
Though it didn’t have a formal peg, Russia, the world’s largest energy exporter, recently in a move to save her currency from further depreciation ended a policy of maintaining the ruble in a fixed band versus a basket of dollars and euros.
While a decision by the CBN to reject cash deposits in dollars resulted in the rise of Nigeria’s currency against the US dollar in the first week of August, this was rather short-lived. The Central Bank of Nigeria (CBN) also increased the list of restricted items excluded for funding from the official foreign exchange (forex) market. However despite banning 41 items from the official forex market, demand is still not being met.
There has been continuous pressure on the currency as the fall in oil prices and the imbalance between increasing demand for foreign currency and the foreign exchange available, continue to intensify. Over the past one year, the Naira lost about 15 % against the dollar with an official devaluation in November. It was devalued from N150-N160 to the U.S. dollar to N180-N197 as it battled to preserve macroeconomic stability, while raising serious concerns.
We should not allow the Naira to continue its free fall considering the negative implications on our economy. Something must be done urgently by both the CBN and other managers of our economy to stem the tide and return sanity to the forex market.