By Abidemi Samuel
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Despite the Central Bank of Nigeria’s (CBN) efforts to stabilize the foreign exchange market, the naira suffered a significant decline of 41% in 2024. This downward trend has raised concerns about the effectiveness of the CBN’s forex reforms and the overall health of the Nigerian economy.
Forex Reforms
The CBN introduced several forex reforms in 2024, aimed at increasing dollar supply, reducing the demand for foreign currency, and stabilizing the exchange rate. Some of these reforms include:
The Naira-Settled Futures Market: A platform that allows investors to hedge against exchange rate risks.
The Investors’ and Exporters’ (I&E) Window: A market segment that enables investors and exporters to trade foreign currency at market-determined rates.
The restriction of forex access for certain imports: A measure aimed at reducing the demand for foreign currency and conserving foreign exchange reserves.
Decline of the Naira
Despite these reforms, the naira continued to decline in value, with the exchange rate rising from around N460/$1 in January 2024 to over N650/$1 by the end of the year. This 41% decline has had far-reaching implications for the Nigerian economy, including higher import costs, increased inflation, and reduced purchasing power.
Impact on the Economy
The decline of the naira has had a significant impact on the Nigerian economy, particularly on businesses that rely heavily on imported goods. The increased cost of imports has led to higher prices for consumers, contributing to the country’s high inflation rate.
Way Forward
To address the challenges facing the naira, experts recommend that the CBN consider a more flexible exchange rate regime, allowing the naira to float more freely on the foreign exchange market. Additionally, the government should implement policies aimed at increasing domestic production, reducing reliance on imports, and promoting economic diversification.
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