Arresting the freefall of the Naira 

For some weeks now, the nation’s currency, the Naira, has been experiencing a steady fall at the parallel market, locally called the black market. Within the past week alone, the value of the currency has depreciated by 2.8 percent to the US dollar, a clear indication that the fundamentals of the economy are not strong, and that something needs to be done urgently to stop the drift.
The current pressure on the naira is in contrast to the rebound recorded shortly after the inauguration of the President Muhammadu Buhari government five weeks ago. The Naira, at the time, appreciated to N180 against the dollar. But, the drop from N222 to N230 against the dollar last week came few days after the Central Bank of Nigeria (CBN) imposed new foreign exchange rules.
The CBN, which said it issued the new regulations in response to increasing business activities and forex demands that had been putting pressure on the Naira, explained that they would help preserve the nation’s External Reserve, facilitate the resuscitation of domestic industries and generate employment. Currently, Nigeria’s External Reserve stands at $29 billion, 2.6 percent lower than it was in May, 2015.  Among the new rules instituted by the CBN is the banning of importers of 41 items from the official forex market.
While we welcome some of the measures put in place to defend the Naira, CBN should be more proactive in its fiscal policy measures to reduce the pressure on our External Reserve. Waiting until the local currency comes under hammering on all fronts makes devaluation inevitable. The banking regulator should resist pressure from bank officials to relax its rules to, in their opinion, “allow the Naira to find its level”.
We believe that every nation should protect and defend its currency because it is a measure of the state of its economy, which ultimately affects investors’ confidence. Failure to do this may result in a situation in which a country’s currency becomes as useless as the Zimbabwean dollar. The Naira should not be allowed a freefall.
From all indications, CBN’s Monetary Policy has not yielded the desired stability in the value of the naira against major foreign currencies. Between November 2014 and last week, the CBN has fixed the exchange rate more than twice, the last being N196.95 to the dollar.
It will be recalled that the Monetary Policy Committee of the CBN, in November 2014, devalued the naira to N168 from N155 to the American dollar. Looking back nine months after, that decision was a panic measure that appears to be affecting the country at different critical levels, the short term gains notwithstanding. The next few months may be tough, if the CBN does not introduce comprehensive measures to stabilize the Naira against major foreign currencies.
The Governor of the CBN, Godwin Emefiele, said last November that the devaluation of the Naira was directed at curbing negative speculations on the nation’s currency, particularly by the commercial banks. The speculations were said to have been putting so much pressure on the Naira. In real terms, the devaluation represents 8.38 percent of the national currency.
Explaining the rationale behind the decision, the CBN Governor had said the level of excess liquidity in the banking system made the decision imperative. To achieve this, the Naira was devalued by moving the mid-point of the official window of the foreign exchange (forex) market by 100 basis points from 12 percent to 13 percent.
In doing so, the CBN targeted the tightening of the monetary policy framework by allowing some flexibilities in the exchange rate as well as stem speculative activities and depletion of our foreign reserve, which as at October, 2014 was N37.1  trillion.
Even though the devaluation may signal to foreign investors the commitment of the CBN to asserting its operational independence, the greater worry is that the much-expected expansion of the economy could be hampered, considering the far reaching negative implications of a devalued currency, which include high cost of production with its resultant lower profit margins for companies, as well as high cost of goods and services.
There is no doubt that the devaluation of the Naira was triggered by the steady fall in the price of oil and our declining External Reserve. Nevertheless, the apex bank should institute more measures to strengthen the domestic currency. A stronger Naira will boost the economy, increase the purchasing power of Nigerians and increase investment inflow into the country.