Victor Ezeja
A World Bank report released this October has ranked the Naira among the worst-performing currencies in Africa, as the Nigerian currency lost 40 per cent of its value following the devaluation carried out by the Central Bank of Nigeria (CBN) on the 14th of June this year.
The World Bank report maintained that “The weakening of the naira was triggered by the central bank’s decision to remove trading restrictions on the official market.” Prime Business Africa recalls that this was when the apex bank authorized banks to sell foreign exchange freely at market-determined rates.
Buyers and sellers of foreign currency in the official FX market were allowed to quote rates they found comfortable in the FX market, as against previous practice where rates were dictated by the CBN. Ever since the naira has fallen from N473.83/$ to around N800/$ officially and is currently over a thousand Naira to the Dollar in the parallel market.
According to the Washington-based bank, this unification and liberalisation of the exchange rates in June 2023 allowed the “Investors’ and Exporters’ (I&E) rate to converge to the parallel one, closing the gap with what was obtained on the street.
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“However, resistance toward the increasing pressure on the Nigerian naira coupled with limited supply of FX at the official window has led to the reemergence of the parallel market premium,” the World Bank added in its report entitled, ‘Africa’s Pulse: An analysis of issues shaping Africa’s economic future (October 2023 | Volume 28).’
The Nigerian currency found itself in the same position as the Angolan Kwanza which 40 per cent depreciation was due to the decision of the southern African country’s central bank to stop defending the currency following low oil prices and greater debt payments.
According to the global financial institution, “So far this year, the Nigerian naira and the Angolan kwanza are among the worst performing currencies in the region: these currencies have posted a year-to-date depreciation of nearly 40 per cent.”
Other currencies with significant losses so far in 2023, according to the World Bank, included South Sudan (33 per cent), Burundi (27 per cent), the Democratic Republic of Congo (18 per cent), Kenya (16 per cent), Zambia (12 per cent), Ghana (12 per cent), and Rwanda (11 per cent). It noted that parallel exchange market rates are also compounding inflationary problems for some countries in the African region.
In June 2023, the Central Bank of Nigeria directed Deposit Money Banks to remove the rate cap on the naira at the official Investors and Exporters’ window of the foreign exchange market and allow the free float of the naira against the dollar and other global currencies.
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