Key Takeaways
- Nigerian CBN Governor hints Naira is overvalued
- New development could be due to foreign demands
- Nigeria has a huge forex demand from businesses
Nigeria has a history of devaluing the Naira due to the failing economy and massive forex demand from the local populace. The latest devaluation occurred in May 2021, where the Apex bank devalued the naira exchange rate from its fixed level of 381 to 410.
This represented the third major devaluation of the Naira in less than two years. Some critics believed that it was done to let the official value closer to the black market rates. However, it has not provided the desired effect with the parallel market rate jumping to 501/$ following the devaluation.
If the latest reports are believed, the CBN chief wants to make the currency closer to the parallel rates. Therefore, if the 10% devaluation occurs, the Naira will likely drop between 430 to 450 closer to the existing parallel rates.
A similar report claims that the devaluation of the Naira could be due to recent calls from the World Bank to the Nigerian government to unify its multiple exchange rates. Nigeria has been plagued with multiple currency rates in recent years, and the World Bank wants a streamlined currency rate before releasing the $1.5 billion loan requested by the government.
The CBN has also faced criticism from within due to the unavailability of dollar reserves for businesses. In addition, Nigeria is largely an import-based economy with more than 70% of goods imported from countries like China, India, and Thailand.
This has placed a burden on the apex bank to deliver forex to businesses that demand it in bulk leading to dwindling foreign reserves. It will be interesting to see how the proposed devaluation will be received in the country.
Do you think Naira devaluation would lead to crypto adoption in Nigeria?
