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Naira Value Drops 161,266% In 50 Years - INDEPENDENT
The naira since its introduction on January 1, 1973, has lost a record 161,266% in value when compared to the U.S dollar, the world’s reserve currency.
Though the naira may be experiencing its worst valuation in fifty years as it currently exchanges at N1000.03 to an American dollar, the currency was once one of the best in the world.
The naira was so strong at a time that the American dollar was paying obeisance to it. It went from 65 kobo to a dollar in 1973 to N1000.03 as of September 30, 2023, a record drop of 161.266 percent.
Sequel to the decision by the government to change from metric to decimal, the name of the Nigerian currency was changed on January 1, 1973.
The major unit of currency which used to be £1 ceased to exist and one naira which was equivalent to ten shillings became the major unit, while the minor unit was called the kobo, a hundred of which made one naira.
The journey between the naira and the dollar started in 1973 when a dollar was exchanged for N0.65. It appreciated to N0.63 in 1974 and also appreciated further to N0.61 in 1975 under the Gen Yakubu Gowon administration.
In 1979, when Nigeria tasted democracy again after the collapse of the First Republic in 1966, the dollar exchanged for N0.59 and was N0.55 in 1980. This was regarded as the best era of the naira dominance among its peers around the world.
The naira began to lose its potency in 1984 under the military government of Muhammadu Buhari when the naira went down from N0.76 to a dollar to N0.89, while the regime of General Ibrahim Badamosi Babangida began the real annihilation of the naira as the Structural Adjustment Programme (SAP) economic policy of the regime brought the naira down from N0.89 to N17.30 at the official market and N21.90 at the parallel market or black market.
The Babangida regime saw the naira dropping by 1,641 percent.
The naira depreciated from N22.33 to a dollar in 1994, N21.89 in 1995 and 1999, or N90 at the black market when Olusegun Obasanjo became a civilian president.
In an indication that the democratic regime was not going to be a golden era as anticipated by many Nigerians, the naira got a shocker when it went down from N21.89 to N85.98 and N105 at the black market. Within one year, the naira experienced a drop of N64 or 292.78 percent.
At the end of the Obasanjo’s regime in 2007, the naira was exchanged at N125 to a dollar, a drop of N103.11 or 471.03 percent.
The first year of President Umar Musa Yar’Adua saw the naira appreciating for the first time in about twenty years when it appreciated to N115.50 to a dollar. By 2009, the naira returned to its depreciating habitat when it went down to N145 at the official market and N171 at the parallel market.
Since 2009, there has been a free fall for the naira as it went down to N148 to the dollar at the official market, N151 in 2011, N155 in 2012, N170 in 2014, N199 in 2015, and N300 at the parallel market.
It was N390 at the official market and N489 at the parallel market in 2016.
The year 2016 saw the introduction of multiple exchange rates and there was a brief appreciation in the official market in 2017 at N333, N360 in 2018, N305 in 2019, N361 in 2020, N399 in 2021, and N412 in 2022.
The story in the parallel or black market segments of the foreign exchange market has been that of woes and disappointment as many issues made it possible for the free fall of the naira.
Under the management led by the former governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, the foreign exchange marketsawtheintroductionof multiple exchange rates.
Nigeria has for years operated multiple exchange rates for the naira — with the official exchange rate dictated by the central bank, while a far higher unofficial rate determined the price of imported commodities like wheat, which are priced in dollars.
This means that different rates are used to convert the naira into foreign currencies like the US dollar or the British pound. Multiple exchange rates have had several adverse effects on Nigeria’s economy. First, it has created economic distortions.
The multiple exchange rates are the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rate, Interbank Exchange Rate, Retail Secondary Intervention Market, parallel market, Investors’ and Exporters’ (I&E) Window Rate, and bureau de change (BDC) or black market.
Individuals and businesses have been incentivised to engage in arbitrage with different rates available, taking advantage of the rate differentials to make profit.
This has led to speculative activities, where individuals buy foreign currency at lower rates and sell at higher rates rather than using the currency for productive investments. Such activities have resulted in an inefficient allocation of resources and hindered economic growth.
Moreover, multiple exchange rates have hindered investment inflows into the country. Investors are wary of the uncertainties associated with the exchange rate regime. Due to restrictions and inconsistencies in the rates, they face challenges in converting their earnings or repatriating profits.
Okechukwu Unegbu, a financial expert and past president of the Chattered Institute of Bankers of Nigeria (CIBN), said that the naira was in a pitiable situation and required commitment by the government to salvage it.
“The crude oil market is on a downward trend; our Bonny light is not doing well in the international market and we have a very little windowtomanoeuvrebecausethenaira and our productivity do not align.
“There is no economic theory that can change the situation. The only way to bridge balance of payments deficits is to increase productivity,” he said.
Prof. Uche Uwaleke of Capital Market at the Nasarawa State University, said that the economic fundamentals required to support a naira float were still weak, especially with sources of forex.
According to Uwaleke, the unification of exchange rates as done by President Bola Tinubu should not be a one-step process.
“It should be implemented over a period of time, however, short it may be. Empirical evidence suggests that reforms are more successful when they are sequenced and implemented in phases”.
Dr. Muda Yusuf, Managing DirectorandCEOof theCentreforthe Promotion of Private Enterprise (CPPE), said the naira recently crossed the N1000 threshold against the US dollar due to heightened demand and insufficient supply.
He called on the new management of the CBN to restore confidence in the forex market by first clearing the backlog of forex obligations to rebuild market confidence and restore the confidence of domestic and foreign investors.
He also called for a concerted efforts as deepening the financial system by mobilising financial resources from the surplus end of the economy to the deficit segment of the economy.
He said the significant gap between deposit and lending rates within the Nigerian banking system is excessively wide, pointing to substantial efficiency challenges within the system, just as he pushed for a fresh capital requirement for banks to reflect the depreciation of the naira.
