WHY EXCHANGE RATE STABILITY IS CRUCIAL FOR THE NIGERIAN ECONOMY
With the way Nigerians talk about the dollar on every app, I don’t think I need to explain what Exchange Rate is. You know it already. But perhaps I need to do so for what Economists and the Central Bank will call “exchange-rate stability.”
Exchange rate stability simply means that a country’s currency maintains a steady value against other currencies over time. It isn’t swinging up and down wildly.
Exchange Rate Stability is particularly important in Nigeria because so much of economic activity has some connection to foreign currency. Manufacturers import machinery and spare parts. Pharmaceutical companies require imported equipment and inputs. Farmers too depend on imported machinery, fertilizer or other inputs. Students pay for examinations, books and services in foreign institutions. We go for holidays in Santorini and other destinations. Businesses purchase software and technology from international suppliers. And the list goes on and on.
When the Naira moves sharply and unpredictably, planning becomes difficult—for everyone, not just businessmen.
Let me give you an example: A company preparing an investment based on one exchange rate may suddenly discover that its equipment costs more before it even leaves the port. Importers may struggle to price their goods. Investors may hesitate because they cannot confidently estimate future returns.
Stability gives businesses something precious: the ability to plan. And when businesses can plan with greater confidence, they are better positioned to invest, expand production and create jobs.
The Central Bank of Nigeria (CBN) is statutorily mandated to defend the domestic value of the Naira, safeguard our foreign exchange reserves, and maintain price and exchange rate stability.
To achieve this, the Bank formulates foreign exchange policy, intervenes directly in the FX market to boost liquidity, and uses monetary tools—such as adjusting the Monetary Policy Rate—to curb currency speculation.
In recent years Nigeria has seen the bold unification of multiple official exchange rate windows into a single, market-reflective mechanism, which dramatically narrowed the distortionary gap between official and parallel market rates. If you ask me this is one of the biggest achievements of the CBN in the past three years.
Many would ask: How did the CBN do this? One, they focused without distraction on clearing legacy foreign exchange backlogs. Then they maintained an aggressive monetary tightening policy, and established transparent trading protocols. Market confidence in no time was significantly restored, and our exchange rate stabilized.
Today, the CBN has tamed extreme volatility, boosted foreign direct and portfolio inflows, and gradually stabilized the Naira within a predictable trading corridor.
For the Nigerian businessman, this exchange rate stability means you can now plan your costs and prices with far more certainty, since the Naira no longer swings wildly from day to day.
You can also get foreign exchange more easily and at rates much closer to the official market, so you no longer have to pay large premiums on the parallel market to import goods or raw materials. With market confidence restored and more foreign money flowing in, it also becomes easier to attract investment or secure financing for your business.
— Martins Okorowu, a finance and investment expert, writes from the United Kingdom
