For year 2020 in the business world in the country, it is a very challenging year. The early slump in the global crude oil market, the main source of foreign exchange for Nigeria and the unprecedented global impact of the covid-19 pandemic in the economy strained the nation’s economy.
Aside this, the naira has for time immemorial been weak to the dollar at the international market due to economic policies of the government that favour importation to local production and export of finished goods.
As at December 2019, one dollar goes for N365 but as at March 2020, the Central Bank of Nigeria (CBN) debunked speculations that it is planning to devalue the naira. It said the rumor was to cause panic in the FX market. The bank stated that while it has no such intention, it assured that the country’s “foreign exchange reserves remains robust and comfortable, given the current realities of Nigeria’s genuine and legitimate FX demand. As such, the CBN remains able and willing to meet all genuine demand for foreign exchange for legitimate transactions.”
But in July 2020, the bank devalued the naira. CBN in the same month raised the rate at the Secondary Market Intervention Sales (SMIS) – a window where importers access foreign currencies – from N360/$1 to N380/$1 with an instruction to bidders to comply accordingly.
Weeks before this development, the CBN governor, Godwin Emefiele, had hinted that the apex bank intended to unify the exchange rate and improve transparency in the currency management.
According to NgnRates, the US Dollar was traded at ₦470 in Lagos Black Market on Sunday, January 03, 2021. Initial USD rate was noted as ₦465 at the beginning of the week on Monday, December 28, 2020. This makes a 1.08% increase for US Dollar rate against Naira this week.
In monthly review, the US Dollar rate started December at ₦490 on Tuesday, December 01, 2020. With Dollar being traded at ₦470 as at January 3, 2021, there is a 4.08% fall for Dollar to Naira exchange rates since the beginning of last December.
In spite the political commitment of the government to diversify the economy which will, to a large extent reduce the frequent shock the naira experience in international market, crude oil has remained the main source of foreign exchange reserves.
What is therefore needful is coordinating monetary policy tools alongside fiscal adjustment. It is important that in the face of the current recession more devaluation of the naira would impose more hardship on manufacturing importers in terms of inputs (leading into cost-push inflation) and also an unsourced increment in the national external debt profile.
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