After months of shielding by the government of Muhammadu Buhari, the Naira is now officially trading at 253.50 per dollar.
The fall came as the ailing currency was floated freely in the market following the central bank’s removal of the official currency peg.
The Naira had weakened in the parallel market following a drop in the price of crude, which accounts for over eighty per cent of the nation’s export earnings. With the drop in dollar revenue, the central bank pushed for currency controls that restricted access to the dollar, a move that caused scarcity of the dollar in the import-dependent nation. In that period, the demand for foreign currency built up to about $3 billion.
It is now hoped that the ‘devaluation’ will ease demand on the parallel market and lead to stabilisation of the currency.
Godwin Emefiele, the CBN governor, had on June 15, when he announced the new monetary policy, revealed that the bank expected the Naira to initially drop before firming against the dollar.
The new policy and the ‘devaluation’ is expected to provide an incentive to foreign investors who have largely stayed away from the country on account of the pegging of the Naira– which cost Nigeria about $2.7 billion of its reserves, 9.3 percent of the total, this year.
President Buhari is said to have been very reluctant to subject the Naira to the whim of market forces, but a 20% drop in value on the first day of trading may be much better than many analysts hoped for. This especially holds true since the currency- formerly pegged at 199 Naira was trading at about 350 Naira to the Dollar before the weekend in the parallel market.