It has been a fight in Nigeria in the forex exchange market as the CBN exchange rate of the Naira to dollar is just fluctuating day by day. Exchange rate policies are always being reviewed and revised to capture current realities in the economic life of a nation.
In Nigeria for instance where the bulk of our national income comes through the sale of crude oil, it is imperative therefore that the exchange rate policy is closely monitored and revised where necessary to curtail sudden fluctuations in the price of crude in the international market, as failure to do so would result in a negative growth for our domestic currency the Naira.
Why Such a Rate?
The CBN exchange rate of Dollar to Naira has in recent times witnessed several changes which were all in a bid to stabilize the falling Naira against the dollar. With several foreign exchange transactions to make by Nigerians but inability to meet up the foreign currency demand especially the US dollar equivalents, the CBN had to formulate policies in order to close this growing disparity between the parallel market and the interbank market rates, and also create a balance between supply and demand.
Effects Felt by Nigerians Towards the CBN Exchange Rate of Naira to Dollar
Nigerians have had to bear the brunt of the continued fall of the Naira against the major global currencies especially the US dollar. This had been occasioned by a depletion of the nations’ foreign reserves.
In explaining the depletion of the foreign reserves, it was due in part to the recent oil glut that characterized the global oil industry hence, since there was a deficit in dollar supply due to crude oil prices fall, the foreign reserve became the last option to depend on, hence its depletion.
The dollar requirements by Nigerians transacting businesses such as importation, travel, BTA (Basic Travelling Allowances) requirements, payments of tuition among several other needs was short in supply. The prices of basic commodities skyrocketed out of the reach of the common Nigerian.
The Effects of the CBN Exchange Rate of Naira to Dollar Today
Today, in order to alleviate the plight of Nigerians on the unfavourable dollar/naira exchange rate regime, the CBN within the last 6 weeks intervened by selling over $200 million dollars to money deposit banks at the rate of $357, with a clear directive to sell to customers at $360.
This has seen a corresponding drop in the naira/dollar exchange rate at the black market (parallel market). The CBN has gone further by also selling over $313.5 million to black market operators to curb scarcity.
This CBN today exchange rate naira to dollar intervention if sustained will further narrow the price disparity between the interbank rate and the parallel market rate (black market) and Nigerians will surely be the better for it as there would be a general drop in the cost of imported items due to the drop in the exchange rate of the naira to the dollar.
The US which was the biggest buyer of global oil and Nigeria’s biggest oil customer found shale oil reserves and started exploration. By this action, it stopped the massive purchase of oil, and as a result, there was global increased oil production and no major buyers to pick up where the US left. The devaluation of the naira to the dollar according to the CBN was to reduce the enormous pressure witnessed by the naira.
What it Means
The CBN exchange rate Naira to Dollar clearly shows that the regulatory body which is the CBN is on top of the situation to stabilize the naira against major currency pairs especially the US dollar which is the currency of international trade, and also ensures the growth of Nigeria’s foreign reserve.
A sustained intervention by the CBN to stabilize the exchange rate of the naira to major currencies has restored confidence in Nigerians that perhaps, all hope is not lost on the economy.
The Importance of the CBN Exchange Rate of Naira to Dollar to the Common Nigerian?
This is very relevant as it directly affects the common man on the street. Going out to buy a smart phone for instance in the local market will make the buyer encounter the effects of the CBN exchange rate naira to dollar policy.
When the exchange rate policy is favourable, the prices of such smart phones will be considerably cheaper than they were when the exchange rate at the parallel market skyrocketed to over N500/$.
However, if the exchange rate is unfavourable, the buyer is rest assured to buy such phone either two times its original cost or even more. This is due to the fact that these products are not manufactured in the country and hence, every imported good was bought through the exchange of its dollar equivalent with the Nigerian Naira.
This also goes for every other imported good being sold at markets across the country.
How to Solve this Problem?
The solution to this problem is simply the enlightenment of Nigerians to value goods produced within the country. Yes, this is a very crucial first step. There is a negative culture among Nigerians who mostly believe that anything imported into the country is more superior that whatever is produced internally. This has killed local industry and encouraged capital flight.
Also, local manufacturers have to stand up to the occasion to produce high quality goods at affordable rates. The production of quality goods is one way to woo customers to patronize locally made products.
The government on the other hand have to implement policies that will discourage imports of goods and local manufacture of these goods. The enabling environment is the responsibility of the government to provide. Only then will the CBN exchange rate naira to dollar be favorable to Nigerians and also easy for the apex bank to implement.