The Naira is weakening steadily because of the increased speculation majorly due to the announcement of the central bank of Nigeria to redesign the Naira note on the basis to stop hoarding of the Naira, stopping counterfeiting, and also to curb inflation among other reasons, however, the free fall of naira to the dollar can be trace to speculation by the player in the foreign exchange market.
The official rate for the dollar stood at $435 while the parallel market is 875 Naira, same applies to other foreign exchange, different opinion has been shared on the implication of the new foreign exchange policy on the Nigeria economy, some said there is no better while the majority believe it is the wrong time and it will be counter-productive
Dangerously, the policy especially the tumbling Naira will have an implication on the economy, it will increase the cost of capital to the private sector, it will affect the cost of Government borrowing, it will lead to a decline in industrial production that will further lead to mass job loss.
This will also lead to a worsening cost of leaving as it will reflect in transportation, high cost of commodities, and other economic life combined. This policy is also coming at a time Nigeria is approaching the festive period that mostly experiences the cost of commodities and consequently increases the inflationary pressure, beyond the festival the nation is also in the campaign season where the election is expected to be in February 2023, Nigeria politicians are fond of keeping money for the campaign and election as expected, this policy further encourage the politicians, businesses, and bureau de change operator to start stockpiling the dollar and other foreign currency speculatively to prepare for the currency redesign and their election spending.
The crashing Nigerian currency is a result of the Central Bank of Nigeria’s multiple exchange rate policies that gives room for connected individuals and currency racketeers to make a huge profit, while genuine users such as manufacturers, the aviation industry, and small and medium enterprise that need it for genuine businesses.
Genuine users are forced to source their forex in the parallel market, they in turn transfer the cost to the consumers, this foreign exchange policy will continue to erode the purchasing power of the Nigerian populace.
The demand for the naira is very low now because of the foreign exchange policies and the newly planned Naira redesign, even Nigerians don’t want to keep the naira beyond the transaction, and we do not have a strong diaspora remittance policy to cushion the effect.
The Russian rubble is one of the highest currencies in the world, not because Russia does not have challenges, but because the government put a deliberate policy that if you must do business in Russia, it must be in rubble. So, all companies are demanding the rubble, their oil is sold in the rubble. The demand for it makes the rubble high even in a war.” Let Nigeria develop a policy to transact the majority of our business in Naira
The federal government has the option to apply brakes on the policy or extend the time to mop up the old currency from circulation to curb the challenge dollarization of the Nigeria economy
Dr. Aliyu O.Ilias,is a Political-Economist, Author(Customer Service Management,Understanding Customer Experience in Africa & CEMBundle).https://bit.ly/2X1scUP
