During the period when Nigeria’s currency, the Naira, was at parity with the US dollar (1 naira to $1), the country was enjoying a relatively stable economic climate. This was a time when the Nigerian economy was growing rapidly, buoyed by a booming oil sector and an expanding agriculture industry. In fact, the period between the 1960s and late 1970s was often referred to as Nigeria’s economic golden age.
Back then, the naira was a strong currency that was widely accepted and used in international trade. The Central Bank of Nigeria (CBN) had a robust foreign exchange reserve, and the naira remained the official currency of Nigeria. It was also a preferred currency for many other countries in the West African region.
At this time, Nigeria was an attractive investment destination for foreign investors who saw huge opportunities in the country’s burgeoning industries. Many multinational companies established their presence in Nigeria, creating employment opportunities for the teeming population and contributing immensely to the country’s economic growth.
However, as the years went by, the Nigerian economy began to face challenges, including declining oil prices, a neglect of non-oil sectors, and failing infrastructure. These factors culminated in the devaluation of the naira in the early 1980s, a trend that continued through the years, leading to a weakened currency vis-à-vis the US dollar. This significant decline in the value of the Nigerian currency has had far-reaching implications for the country’s economy.
Several measures were taken by the Nigerian Government to stabilize the currency and prevent further depreciation. One of these measures was the introduction of multiple exchange rates. This was supposed to usher in competition among Forex traders, including the Black Market, and help to stabilize the currency.
However, the opposite has been the case in Nigeria, where the Official Foreign Exchange Rate currently N461 (Per $1) on 02/06/2023 is sold much lower than the Black Market rate currently at N745. Official Foreign Exchange rate is the rate at which the CBN sells its foreign currencies to the citizens while the Black Market is meant to be a competitor to the Central Bank of Nigeria.
But instead this has led to corrupt officials and bankers buying up a large portion of the forex reserves in the bank at official rate which is usually far lower than the Black Market rate such as the figures stated above and then sell them to the Black market operators, perpetuating economic disaster.
The Black Market thrives because the Official Foreign Exchange Rate is far lower than the Black Market Rate. The multiple exchange rates system has created an avenue for corruption, with Government officials, bankers, and other unscrupulous individuals buying foreign currency at the Official rate and selling at the Black Market rate.
Rather than stabilize the currency, the multiple exchange rates have led to further devaluation of the naira. The Black Market exchange rate has remained stubbornly high mostly because the official foreign exchange rate is never available, and therefore the Official Foreign Exchange rate has not kept pace. This means that Nigerians who cannot access foreign currency at the Official rate are forced to buy at the Black Market rate, which further weakens the Naira.
Additionally, Nigeria has relied heavily on crude oil exports for revenue, and this has meant that the country’s economy is highly vulnerable to fluctuations in oil prices. When oil prices fall, as they did in 2014, Nigeria’s economy suffers, and the Naira depreciates even further. The country has not diversified its economy, and the manufacturing sector remains underdeveloped, which would have been another avenue to boost the economy and the naira’s value.
The depreciation of the naira has had dire consequences for ordinary Nigerians. It has led to inflation, increased unemployment, reduced purchasing power for citizens. Prices of goods and services have skyrocketed, and the cost of living has become unbearable for many. It has also hampered foreign investment, as potential investors are deterred by the instability of the currency.
The government’s efforts to stabilize the currency have not addressed the root cause of the problem. Corruption is rife, and there is a lack of political will to implement long-term solutions that will help to diversify the economy and reduce the country’s reliance on oil.
In summary, the period when Nigeria’s currency was at parity with the US dollar was a time of economic prosperity and stability for the country. The naira was a strong currency widely used in international trade, and foreign investors saw Nigeria as a highly attractive investment destination. The government’s multiple exchange rates system was intended to stabilize Nigeria’s currency and reduce reliance on the Black Market. But instead, it has created an opportunity for corruption.
Therefore, permitting a huge gap between the Official Rate and the Black Market, thus exacerbating the economic crisis. Moreover, the Nigerian economy has not been diversified enough, as the manufacturing sector remains underdeveloped which would have helped boost the naira’s value. So until real solutions are implemented that address both creating an environment in which Forex traders do not need to turn to shady methods and diversifying the country’s economy.
