Just two weeks after the Central Bank debunked the news of Naira devaluation reported by Daily Trust, the Naira has now been officially devalued using a different approach, as the CBN directs banks to trade freely.
It is clear that the news leaked to the public caught the CBN off guard, and they might not have been fully prepared with the policy. Was this policy intended to boost Nigeria’s economy, or was it merely a response to the depleted foreign reserves that caused a scarcity of dollars and other foreign currencies for Nigerians involved in import bills and other international transactions?
Even though ordinary manufacturers and business owners were never able to enjoy the CBN’s official dollar rates for their letter of credits (LCs), except for BTA and PTA, corruption led only those in high-ranking government positions to receive dollars at official rates or lower for profit-making purposes.
It has become widely recognized that global trade is conducted using the currencies of major economic powers such as the US dollar, the European Union’s euro, the Japanese yen, and to a lesser extent, the Chinese renminbi and the UK’s pound sterling. Individuals, firms, and governments around the world need these currencies to import goods and services and make other payments overseas, such as school fees, medical bills, and trade.
A dollar shortage occurs when the demand for this foreign currency exceeds the available supply at the official exchange rate set by the CBN. Depending on how the rate is managed and controlled by the central bank, a dollar shortage will have an impact on various aspects of the economy, including international balance of payments, debt repayments, foreign reserves, and GDP.
In countries with fixed exchange rate regimes, where the national currency is pegged to a hard currency, the shortage may be physical. The banks that usually supply customers with dollars may simply have none to sell or may be forced to ration their limited stock.
Many countries in the world today operate some form of flexible exchange rate, where their central banks do not intervene to support a particular exchange rate. Even in such cases, there may be some level of control over the actual shortage, as dollars would be available but could only be purchased at a higher cost, benefiting those privileged individuals who benefited from the suspended CBN governor’s then-official rate.
Undoubtedly, the Naira has lost value against the US dollar due to the severity of the dollar shortage and the misuse of forex by the previous administration as a means to enrich certain government officials under the then CBN governor.
It is unfortunate that all Nigerians will have to bear the consequences of the Apex Bank’s imprudent actions.
Jamilu Abdussalam Hajaj writes from Abuja
