The issue of the depreciation of the naira has dominated economic concerns throughout Nigeria, from when the naira was declining from around $0.6 to $1.0 in the early 1980s to when the rate was being partly managed at the official rate during the last year of the Shagari era.
At the onset of the Buhari military regime, It was then around $1.12 to N1.0, then managed downwards gradually through this period to the Babangida military era of 1985 to 1993.
By the end of the 1985 budget period, the unresolved problem with the IMF on a reform package was being addressed by the new Babangida regime. Then coming down to the present President M. Buhari lead government where it is $1.0 to N345
The fortunes of the naira are determined, like that of any other currency, in a relatively free market by the level of demand of foreign exchange in relation to the level of supply. The quantum of foreign exchange is made up of foreign exchange earnings from oil and non oil products.
Inflows of foreign exchange from direct equity and portfolio investments, transfers from resident and non-residents including net tourism earnings and short, medium and long term credits disbursed within the Nigerian economy.
The demand for foreign exchange on the other hand is made up of the following in any given period, the foreign exchange component of projects in both the public and the private sectors, the need for general imports, the need for debt service in various currencies and the need for travel, transfers, donations etc. The foreign exchange component of projects has been estimated at around 75percent on the average for the Nigerian economy. It is of course higher in the production of some capital intensive goods and services and lower in the more labour intensive goods and services and lower in the more labour intensive areas of domestic production of goods and services.
The equation which shows the relationship between the supply and demand yields the exchange rate at that given point in time. observers of world trade and exchange statistics will note that with the abandonment of fixed exchange rate government, there are virtually constant changes in all currencies and exchange government all over the world on a daily basis.
A principal factor which has been responsible for the fall of the naira is therefore simply the continuous existence of excess demand for foreign exchange in relation to the available supply.The Naira yesterday suffered its biggest daily depreciation against the dollar as the exchange rate and rose to N345 per dollar in the parallel market. This represents N20 depreciation when compared with the closing exchange rate of N325 per dollar in the market on Friday. But the naira was relatively stable at the official interbank foreign exchange market as the interbank rate stood at N197.47 per dollar at the close of business yesterday. The naira also depreciated by N45 against the British pounds sterling as the parallel market exchange rate rose to 485 per pounds yesterday from N340 on Friday.
Bureaux de change sources who confirmed this developement attributed the sharp depreciation to increasing scarcity of the dollar and pound sterling in the market . According to an abuja based BDC operator who spoke on condition of anonymity. "The market is experiencing huge demand for dollars but there is no supply. E ven those who have dollars are not willing to sell. The way things are going, the rate might touch N350 per dollar before it will stabilizes". This developement widened the gap between the interbank rate and the parallel market rate to N147.53 per dollar from N127.53 per dollar last week.
The naira has been on steady decline since Tuesday, January 12th 2016, when the central bank of Nigeria(CBN) stopped weekly dollar sale to BDCs. Prior to this action, the naira traded at N265 per dollar in the parrallel market.Consequently the naira has depreciated by N80 in the parallel market since the CBN took the action.
The steady depreciation was also aggravated by the inability of the CBN to meet foreign exchange demand. Our findings reveal that the parallel market is been bedeviled with demand for foreign exchange from importers of the 41 items excluded from the official market by CBN last year as well as importers of items not excluded from the official market.
So in determining why the naira has fallen, we have to go back to the savings level, both domestic and foreign , the level and efficiency of investment, the level and growth of output, the level and growth rate of the distribution of income, the level and growth of employment. All of this factors will impact on living standards, on the level of infrastructure and on the tone of the social and political environment.
In all of these issues, informed leadership in its broadest sense, is a key starting point. Good governance,lack of corruption, accountability and efficiency in an open and transparent legal and security environment are all indispensable prerequisites.
At the onset of the Buhari military regime, It was then around $1.12 to N1.0, then managed downwards gradually through this period to the Babangida military era of 1985 to 1993.
By the end of the 1985 budget period, the unresolved problem with the IMF on a reform package was being addressed by the new Babangida regime. Then coming down to the present President M. Buhari lead government where it is $1.0 to N345
The fortunes of the naira are determined, like that of any other currency, in a relatively free market by the level of demand of foreign exchange in relation to the level of supply. The quantum of foreign exchange is made up of foreign exchange earnings from oil and non oil products.
Inflows of foreign exchange from direct equity and portfolio investments, transfers from resident and non-residents including net tourism earnings and short, medium and long term credits disbursed within the Nigerian economy.
The demand for foreign exchange on the other hand is made up of the following in any given period, the foreign exchange component of projects in both the public and the private sectors, the need for general imports, the need for debt service in various currencies and the need for travel, transfers, donations etc. The foreign exchange component of projects has been estimated at around 75percent on the average for the Nigerian economy. It is of course higher in the production of some capital intensive goods and services and lower in the more labour intensive goods and services and lower in the more labour intensive areas of domestic production of goods and services.
The equation which shows the relationship between the supply and demand yields the exchange rate at that given point in time. observers of world trade and exchange statistics will note that with the abandonment of fixed exchange rate government, there are virtually constant changes in all currencies and exchange government all over the world on a daily basis.
A principal factor which has been responsible for the fall of the naira is therefore simply the continuous existence of excess demand for foreign exchange in relation to the available supply.The Naira yesterday suffered its biggest daily depreciation against the dollar as the exchange rate and rose to N345 per dollar in the parallel market. This represents N20 depreciation when compared with the closing exchange rate of N325 per dollar in the market on Friday. But the naira was relatively stable at the official interbank foreign exchange market as the interbank rate stood at N197.47 per dollar at the close of business yesterday. The naira also depreciated by N45 against the British pounds sterling as the parallel market exchange rate rose to 485 per pounds yesterday from N340 on Friday.
Bureaux de change sources who confirmed this developement attributed the sharp depreciation to increasing scarcity of the dollar and pound sterling in the market . According to an abuja based BDC operator who spoke on condition of anonymity. "The market is experiencing huge demand for dollars but there is no supply. E ven those who have dollars are not willing to sell. The way things are going, the rate might touch N350 per dollar before it will stabilizes". This developement widened the gap between the interbank rate and the parallel market rate to N147.53 per dollar from N127.53 per dollar last week.
The naira has been on steady decline since Tuesday, January 12th 2016, when the central bank of Nigeria(CBN) stopped weekly dollar sale to BDCs. Prior to this action, the naira traded at N265 per dollar in the parrallel market.Consequently the naira has depreciated by N80 in the parallel market since the CBN took the action.
The steady depreciation was also aggravated by the inability of the CBN to meet foreign exchange demand. Our findings reveal that the parallel market is been bedeviled with demand for foreign exchange from importers of the 41 items excluded from the official market by CBN last year as well as importers of items not excluded from the official market.
So in determining why the naira has fallen, we have to go back to the savings level, both domestic and foreign , the level and efficiency of investment, the level and growth of output, the level and growth rate of the distribution of income, the level and growth of employment. All of this factors will impact on living standards, on the level of infrastructure and on the tone of the social and political environment.
In all of these issues, informed leadership in its broadest sense, is a key starting point. Good governance,lack of corruption, accountability and efficiency in an open and transparent legal and security environment are all indispensable prerequisites.
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