The Magic Behind Naira Appreciation

What has happened to the naira in the last 7 weeks has been described as nothing short of a miracle by onlookers.?

The question asked by many has been ‘have we actually turned a corner?’?

The Nigerian Naira has gained at least 28 per cent in the last three weeks.

At close of business yesterday, the Naira appreciated even further.?

We take a look at the reasons for this upward valuation of the Nigerian Naira.

First, the clearing of the country's FX backlog inherited from the previous administration. A big part of the overall strategy detailed in the first Monetary Policy Committee meeting for year 2024 which was a month ago was the clearance of the foreign exchange transactions to stabilize the exchange rate which will? curb imported inflation and spur confidence in the banking system and the economy.

The CBN recently declared that all foreign backlogs worth $7 billion have been cleared. To do so the apex bank employed an independent auditing firm Deloitte Consulting to assess the transactions to ensure only legal claims were honored.

What else could have been responsible for the appreciation of Naira? Increase in External reserves: The CBN has reported a significant increase in external reserves, rising by $993 million to $34.11 billion as of March 7, 2024 which is the highest level in eight months.

Another factor could have been, the collapse of the segmentation of forex markets has also helped in the appreciation of naira presently recorded.

?Last year a decision was taken to collapse all segments into the Investors and Exporters window and this meant the naira will be traded at a “willing buyer, willing seller” market rate instead of regulated rates against the US dollar and other currencies.

Some have said the decisive action against Binance has contributed to this gain. I did an entire episode where I shared about what was going on between the Federal Government and Binance, the link that is on the screen right now. According to reports over $200 billion went through the Binance Nigeria platform in 2023 and the federal government has commenced further investigation as there are suspicions as the transactors of such whooping sum.

Another reason could be the increase in interest rate which means that the propensity to save has increased and the propensity to consume has actually reduced. People are consuming less and saving more if they are saving.

What has the presidency said?

President Bola Tinubu has assured that the current momentum that Nigerians are seeing with respect to strengthening of the naira against other major currencies including the dollar will be sustained and not going to slow down.

What can be done to sustain this appreciation of naira?

-This? country’s currency appreciation is sustainable if the government continues to do the right things fiscally and monetarily.

- The change now experienced is as a result of the trust deficiency closing up as Investors seem to trust the decision made by the heads at the Central bank. Speculators are uncertain as to the moves by the team.

-? Another key topic of conversation was the role of speculators in impacting the naira rates. Speculators have taken advantage of the shortage of FX supply in the market, creating arbitrage opportunities. The Central Bank of Nigeria can reduce the incentive for speculators to operate, ultimately stabilizing the currency by improving FX supply.

- We need Liquidity. Liquidity will come when we have improved crude oil production. That’s the fastest route to get liquidity sufficient enough to clear arrears.

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