For the past one year, Naira and Dollar have been in some kind of power struggle as their dominance keeps fluctuating. Gone are the days when 5 Dollars could be bought with just 1000 Naira. Now, that same amount cannot even purchase a Dollar, talk more of 5 Dollars.
This fluctuation has led to a lot of economic and financial issues such as inflation, food scarcity, increased mortality rate, among others. However, it seems Naira is trying to reclaim dominance as Nigerians are happy that the Naira to Dollar battle is occasionally favoring the side of the Naira. Last year, Naira reached an all time depreciated high of almost 2,000 Naira to 1 Dollar.
In the black market today, a Dollar can be gotten between the ranges of 1,660 – 1,665 Naira as opposed to 1,650 Nnaira on Tuesday, 7th January.
These fluctuations in Naira dominance can be attributed but not limited to;
- Foreign Exchange Reserves: The Central Bank of Nigeria (CBN) plays a significant role in stabilizing the Naira through interventions in the foreign exchange market. A robust reserve position strengthens the Naira, while decreasing reserves exert pressure on its value.
- Oil Prices: Nigeria’s economy is heavily reliant on crude oil exports, with oil revenues accounting for a significant portion of foreign exchange earnings. A rise in global oil prices can boost the Naira’s value, while a slump often triggers depreciation.
- Inflation and Monetary Policy: High inflation rates erode the Naira’s purchasing power, leading to depreciation. Conversely, sound monetary policies that curb inflation and encourage investment can support the currency.
- Demand and Supply Dynamics: The Naira’s exchange rate is influenced by demand for foreign currencies for imports, education, and travel. Excessive demand relative to supply can cause depreciation, while reduced demand or increased foreign inflows can spur appreciation.
As of now, the Naira’s trajectory leans more towards depreciation. However, there are occasional signs of appreciation, particularly during periods of favorable oil prices, external loans inflows, or policy measures that restore investor confidence.
