How Nigeria's currency crisis affects its citizens and economy
The Nigerian naira plunged to a new all-time low of N1,200 per US dollar at the parallel market on Friday, amid growing calls for the resignation of the Central Bank of Nigeria (CBN) governor, Olayemi Cardoso.
Cardoso, who assumed office in September 2023, has been accused of mismanaging the country's foreign exchange reserves and failing to address the persistent depreciation of the naira.
The naira, Nigeria's currency, has been on a downward spiral since June 2023, when the central bank abandoned its currency peg and allowed the naira to trade freely. Since then, the naira has lost more than 80% of its value against the US dollar, reaching a record low of ₦853 to US$1 on July 19, 2023¹.
The currency crisis has had a devastating impact on the lives of millions of Nigerians, who are struggling to cope with soaring inflation, rising unemployment, and dwindling foreign reserves. The naira's depreciation has also eroded the purchasing power of Nigerians, making imported goods and services more expensive and scarce. Many businesses have been forced to close down or lay off workers, as they cannot afford to import raw materials or pay for foreign debts. The naira's plunge has also affected the government's ability to fund its budget and implement its economic recovery plan, as it relies heavily on oil exports, which are priced in US dollars.
The Centre for Social Justice, Equity, and Transparency (CESJET), a civil society group, issued a statement on Wednesday, demanding Cardoso's immediate resignation for allegedly undermining the economic stability and sovereignty of Nigeria.
"Cardoso has shown gross incompetence and negligence in his handling of the naira crisis, which has resulted in unprecedented inflation, unemployment, and poverty in the country," the statement read.
The group also accused Cardoso of being influenced by foreign interests and implementing policies that favour the importation of goods over the promotion of local production.
Some of the measures include the ban on the use of cryptocurrencies, the suspension of third-party agents from the National Identification Number (NIN) enrolment, and the revalidation of bank accounts for diaspora remittances.
The naira has lost more than 50% of its value against the US dollar since Cardoso took over the CBN, despite the introduction of several measures to boost liquidity and curb speculation in the forex market.
However, these measures have failed to stem the tide of the naira's decline, as the demand for foreign currency continues to outstrip the supply.
According to Fitch Ratings, a global credit rating agency, the CBN is still short of the amount needed to clear the backlog of forex requests from importers and investors, which is estimated at $7 billion.
The agency also warned that the naira's depreciation could pose a risk to the country's debt sustainability and financial stability, as well as erode the purchasing power of the citizens.
The naira's free fall has sparked widespread protests and calls for the resignation of President Bola Ahmed Tinubu, who has been accused of mismanaging the economy and failing to address the currency crisis. Some protesters have also demanded the reintroduction of the naira's peg to the US dollar, or the adoption of a common currency with other West African countries, such as the eco. However, the central bank has defended its decision to float the naira, saying that it was necessary to restore market confidence and attract foreign investors. The central bank has also launched the eNaira, the digital version of the state currency, in October 2021, hoping to boost financial inclusion and reduce the demand for foreign currency.
The naira's fate depends largely on the global oil market, as Nigeria is Africa's largest oil producer and exporter. The recent surge in oil prices, driven by the recovery of the global economy from the COVID-19 pandemic, has provided some relief for the naira, as it has increased Nigeria's foreign exchange earnings and reserves. However, the naira remains vulnerable to external shocks, such as the emergence of new variants of the coronavirus, the slowdown of the Chinese economy, or the geopolitical tensions in the Middle East. The naira also faces internal challenges, such as the persistent insecurity and violence in the country, the lack of structural reforms and diversification of the economy, and the low level of public trust and confidence in the government and the central bank.
Meanwhile, some analysts have suggested that the CBN should adopt a more flexible exchange rate regime and allow the naira to reflect the market realities.
They also urged the government to implement structural reforms and diversify the economy away from oil dependence, in order to boost the country's foreign exchange earnings and reserves.
The naira's crisis is not only a monetary issue, but also a social and political one. It reflects the deep-rooted problems and challenges that Nigeria faces as a nation, and requires a comprehensive and coordinated response from all stakeholders, including the government, the central bank, the private sector, the civil society, and the international community. The naira's recovery is essential for Nigeria's stability and prosperity, as well as for its regional and global role.
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