Naira Meets Dollar- The True Devaluation

Fashion home! It has been a very interesting two-three weeks in the financial sector in Nigeria and I intentionally chose to watch and pray rather than rant and over analyze.

As expected, friends and colleagues who were against this government were quick to call me and further express disappointment at the present administration but like I always say, the government is ours and cannot be without us. We are collectively responsible for its success and existence.

The interplay between the naira and dollar over the past weeks have simply been a practical illustration of the law of demand and supply.  The crashing value of naira began during the 2015 presidential election when many people were uncertain of what the outcome would be and as a result, investors pulled out their investments. The new government came to power with the aim of boosting the economy by encouraging the production and use of locally made goods being the reason why avenues to discourage importation were put in place.

However, importers who needed to keep up with their business, moved their foreign exchange demand to the parallel market(black market) as an alternate means to the bottle neck of accessing forex from the banks. The sudden increase in demand for dollar in the parallel market over naira as expected mounted pressure on the naira being the result of what has been playing out with the currency. It is very pertinent for us to note however that the official rate of the naira as against dollar is different from the rate in the parallel market. The official rate of naira to dollar is 199.5 and has remained reasonably stable only for on the 31st of January when it fell to 201 but has since regained its value.
It still surprises me when I see people calling out for the government to devalue the currency and my question remains “on what basis should this be done?” As far as I am concerned, the naira has already been devalued by market forces and any further attempt to devalue it officially will only bring about inflation and unnecessary hardship to the citizens of Nigeria. If only we can support the call for entrepreneurship and production and use of locally made goods, then the economy will be great again.