The Role of a Stable Currency
A strong and stable currency is at the heart of any thriving economy. It fosters confidence among investors, businesses, and households, ensuring economic progress. However, when a currency experiences frequent fluctuations, the cost of living rises, investment declines, and growth slows down.
For Nigeria, the Naira represents more than just money—it is the backbone of economic stability. It drives commerce, enables families to plan for the future, and supports businesses in expanding their operations. Yet, in recent years, persistent volatility and devaluation have cast a shadow over Nigeria’s financial landscape.
The Factors Affecting Naira Stability
The value of the Naira is influenced by several key factors, including:
✔ Inflation – Nigeria’s inflation rate hit 29.9% in January 2024, reducing purchasing power and driving up business costs.
✔ Foreign Exchange Reserves – With $33 billion in forex reserves as of February 2024, the country relies heavily on oil revenues to maintain liquidity.
✔ Government Policies – Multiple exchange rate systems and frequent Central Bank interventions sometimes create market distortions rather than stability.
✔ Oil Dependence – Nigeria’s economy is highly exposed to crude oil price fluctuations. The 2020 oil crash led to severe Naira depreciation, and similar risks persist.
Naira’s History of Fluctuations
The Naira has faced repeated devaluations over the years. For instance:
✔ The Structural Adjustment Program (SAP) of the late 1980s dropped the Naira’s value from ₦0.89/$ to ₦21.89/$.
✔ In 2016, a recession saw the exchange rate plunge to over ₦300/$.
✔ By 2024, forex shortages pushed the Naira close to ₦2,000/$ before it began to stabilize.
Clearly, lasting stability requires more than short-term fixes—it demands economic diversification, consistent monetary policies, and renewed investor confidence.
CBN’s Recent Efforts to Strengthen the Naira
In response to these challenges, the Central Bank of Nigeria (CBN) introduced the Electronic Foreign Exchange Matching System (EFEMS) on December 1, 2024. This system:
Since its launch, the Naira has strengthened against major currencies like the pound and euro. In February 2024, while the official exchange rate weakened by 1.6%, the parallel market saw a 6% appreciation, signaling improved forex liquidity.
Foreign Investments and Oil Revenues Supporting the Naira
Aside from policy reforms, foreign investments have contributed to Naira stability. Increased interest in treasury bills and government bonds has injected much-needed foreign capital into the economy.
Additionally, Nigeria’s crude oil output rose to 1.7 million barrels per day in January 2024, up from 1.48 million barrels in December. With oil prices averaging $74 per barrel, revenue inflows have bolstered forex reserves, easing some of the external pressures on the currency.
The Role of Bureau De Change Operators
The Bureau De Change (BDC) sector has also played a role in narrowing the gap between the official and parallel market rates. In February 2024, the parallel market rate improved from ₦1,600/$ to ₦1,500/$.
To sustain this momentum, the CBN extended BDC forex allocations until May 2025. Under this arrangement, operators can purchase up to $25,000 weekly, ensuring greater stability and liquidity in the retail forex market.
Pathway to Long-Term Stability
Ensuring sustained stability for the Naira will require:
If these strategies are effectively implemented, Nigeria’s real GDP growth could surpass 5% in 2025, while inflation could ease to 15%, down from the record-high 34.8% in 2024.
The Bigger Picture: Economic Resilience
The Naira’s stability is not just about exchange rates—it is the foundation of Nigeria’s economic resilience. A coordinated effort from policymakers, financial institutions, and businesses is essential to ensure:
With the right policies and continued reforms, Nigeria can overcome its currency challenges and unlock a future of economic prosperity
