Money Market: Naira Tumbles By 51.95% Despite CBN’s Defense Measures
The value of the naira to the dollar fell from 196.99 in December 2015 to 410 in April 2021, reflecting a 51.95 percent decline irrespective of the several foreign exchange policies introduced by the Central Bank of Nigeria to strengthen the currency.
According to a monthly document obtained from the CBN’s website, the value of naira at the inter-bank forex market remained at N196.99 as of December 2015.
Last month, the CBN officially adopted the NAFEX exchange rate of N410.25/$1 as its official exchange rate, devaluing the naira from N379/$.
While trying to achieve exchange rate stability and maintain the country’s forex reserves, the CBN in 2015 reviewed downwards the spending limit on the usage of naira-denominated debit cards for transactions abroad.
In a circular issued in April 2015 signed by the then Director of Trade and Exchange, Olakanmi Gbadamosi, the bank said the limit had dropped from $150,000 to $50,000 per person annually, while daily cash withdrawals per person was pegged at $300.
After six months of implementing the policy, the value of naira in the official window remained stable at 197/$, but dropped from 210/$ to 258/$ at the parallel market.
A circular issued by CBN said, “The implementation of this policy will conserve foreign reserves as well as facilitate the resurrection of domestic industries and improve employment generation.”
However, after about a year of implementation, the value of naira plummeted at both markets, dropping from 197/$ to 232/$ and 218/$ to 351/$ at the official and parallel markets respectively.
In 2017, the exchange rate at the official window fell to the N300/$1 threshold, ranging between N305 to N306 to a dollar.
This was despite the introduction by the CBN of a new window for investors, exporters and end-users aimed at driving liquidity in the forex market.
From January 2020 to April 2021, the naira continued in a downward trend at both markets, falling from 307/$1 to 381/$1 in the official window and 361/$1 to 481/$1 at the parallel market.
In March 2021 the CBN introduced an incentive of N5 for every $1 of fund remitted to Nigeria through International Money Transfer Organisations, as part of its reforms to boost the inflow of foreign currency in the country.
The incentive was termed ‘Naira-4-dollar scheme’.
