Important Points To Note On Naira Depreciation

By Ikenga Ezenwegbu

1. If Nigeria exports more goods than it imports, then the value of the naira would be stable or appreciate against other currencies.
2. If Nigeria produces more of what it consumes locally and imports less, then the value of the naira will be stable.
3. When Nigeria imports virtually everything it needs, there will be a higher demand for foreign currencies especially US dollars by its importers than the amount of FX available. This will cause the rate of exchange of naira to foreign currencies to rise.
4. When there is a general insecurity in Nigeria, foreigners will be scared and will rather go to safer countries to invest their funds hence denying Nigeria huge inflows or supply of foreign currencies which would have increased amount available for importers to use. It is the same when existing foreign companies close up and leave Nigeria.
5. The central bank does not generate foreign currencies. It only helps to allocate foreign currencies earned by federal government to needy importers or travelers through the banks. It also regulates the way banks trade in foreign exchange. CBN doesn’t print foreign currencies and can’t be blamed for its scarcity.
6. If the federal government’s foreign currency earnings drop, CBN would have limited amount to provide to the importers or travelers through banks as is presently experienced.
7. When exporters of goods and services refuse to repatriate all their FX earnings, it reduces the amount available to banks to sell to importers through Imports & Exports (I&E) window.
8. During scarcity of FX, the rates will increase as we experience now. Normally, prices of items including currency will always rise when it is in short supply. When this happens, black market will hold sway as we experience at the filling stations when petrol is scarce.
9. During scarcity, CBN and the federal government would appraise the situation and discriminatorily allocate FX to critically important sectors of the economy like Health, Security etc. The implication is that other sectors would have to contend with whatever amount of allocation they receive from CBN through their banks.
10. If Nigerian security forces could arrest the current massive theft of Nigeria’s crude oil in the Niger Delta, it would massively increase the amount of FX revenues available to CBN to allocate to importers and other FX users. Also, if Dangote and NNPC refineries could start production soonest, it would help reduce the bulk of FX consumption by imported petroleum and allied products hence freeing up a huge amount of FX available for other imports.
11. In truth, the most effective solution principally lies in your choice of Nigeria’s president on Feb 25, 2023. It is all about government’s actions and inactions.

Thursday 28 July 2022

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