CBN Naira Intervention | CBN Currency Intervention
The Nigerian currency has in all my adult life been losing against the dollars, pounds, euros as well as other globally recognized currency in the world. The history book has not been kind either, because records have it that since the naira started failing, it has never gain ground against any of the currency I listed early while losing a whole lot of ground, there was a time a dollar exchange to less than 5 naira, today the naira currency has retrogressed so bad that a dollar exchange to as much as over N1,400 naira. And going by the trajectory, it doesn’t seem like the naira will recover any time soon.
The thing is, no government ever wishes to have a currency that loses the currency battle, except for deliberate devaluation aimed at boosting export of locally made goods, reducing trade deficit, interest payment as well as debt owe the government (in most cases government loan). Most times the end result is usually inflation, high cost of living if not properly checked can lead to more inflation, usually it never stops if not managed the right way. This is the story of most African countries whose currency is in the ‘’ditch’’ at the moment.
CBN Naira Intervention
Currency intervention is usually activated when the country’s apex bank begins to either buy or sell foreign currency in other to get domestic currency. This helps to control inflation, encourage competitiveness, effectively positioning the economy for financial stability, which is best described as currency manipulation. In Nigeria’s case it is long over due for a CBN naira intervention. Since the administration of President Bola Amed Tinubu, within the period of April, 2024, the depreciation experienced by the naira was recorded at about 23% within the space of 4 days, the currency dealers association whose analysis birthed this submission where of the opinion that the currency will most possibly lose more value.
Why The Naira Depreciate
On the streets of Nigeria, literally everyone has an opinion on the reason why the currency keep depreciating, despite the perceive CBN naira intervention, seems more needs to be done. The thing is, different factors has contributed to this current naira situation, one prime example is the sudden increase in dollar demand in the parallel market controlled by DMBs as well as other users, and then the slow forex distribution by the BDCs at the CBN, this is the reason behind the recent depreciation the naira experienced, this is believed to be the worst in recent history.
However, there was a recent appreciation by the naira, information revealed that the CBN naira intervention process was activated. The rescue of the naira currency by the Central Bank Of Nigeria was initiated at the Nigeria Foreign Exchange Market, NAFEM. Some social media pundits are of the opinion that the move will be counterproductive, as it is not sustainable. Currently, the people who are into money business (buying and selling) are uncertain as to where the naira is headed. The naira was exchanging for $1 to 1,140, 1,820, 1,339, 1,169 and 1,405 within a few days, this fluctuation is the reason for the uncertainty.
Some of the sharp practices being exhibited by these operators that caused depreciation includes forex traders adopting some bank methods of buying dollars at the parallel market, depositing same into DMBs and then selling at official rates. BDC operators are insisting that this is the factor that triggered the current increase in dollar demands and on the long run a 25% depreciation rate of the naira.
At the end of the day, naira intervention by the CBN in the official market will save a lot of faces. Setting up task forces to monitor the parallel market etc. However, a more permanent solution is to turn the economy into a more productive economy where export will be high than imports.