Naira Appreciation,Need for Price Control

FOR about a month now, February 21 – March 21, 2024, the exchange rate of dollar to naira seems to have stabilized and not gone beyond N1400. Before, it was N1900. This is very commendable and cheering. However, in spite of the appreciation of the naira against the dollar, this hasn’t reflected in the prices of goods and services. Recently, the Central Bank of Nigeria (CBN) cleared the $7 billion foreign exchange backlog inherited by Governor Yemi Cardoso. “With backlog FX settled, Naira is set to appreciate further, faster. Currency speculators should quickly dump their stock of dollars to avoid sorrows and tears.”

DEVALUATION of a currency globally is the end product of declining the nation’s currency in relation to major currencies of the world. Since 1986, the Nigerian naira’s relationship with the U.S dollar (and other foreign currencies) has been erratic, predictable and unpredictable, violent and of course full of tears and heart break to the citizens, government and the economy as a whole. The devaluation of naira can be compared to its most compared currency, dollar.

DOLLAR has an effect on many nation’s currencies due to the  economy and that many citizens of different nations tend to exchange, import goods from the U.S. and as well look up to the currency. The U.S. dollar is looked upon due to the fact that historically it played a significant role in the colonization of most African nations and some nations around the globe. As such, the currency of the United States is regarded as the giant currency as being compared to by many nations.

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THIS shows that when the dollar sneezes, most nation’s currencies are affected due to other nations’ dependency, and especially the naira.

THE effect of this on the Nigeria economy is a by-product of monetary decision to prevent it from collapsing. The effects of devaluation having its positive results also embrace the negative effects on making the importation of goods more expensive, as well as protecting domestic industries thereby making them to be less efficient and effective without little or no competition among international rivals.

THE positive effects of naira devaluation to the Nigeria economy are: It encourages producers of some sectors to increase output and exports, it strengthens the currency (naira) in the course of dwindling oil price, Increase in exchange rate leads to increase in output, and the improvement in balance of payment is neutralized by the use in price. On the other hand, the negative effects include: it affects business by increase in inflation, it reduces the purchasing power of the citizens, increase in unemployment, it tightens the monetary framework of the nation, it allows a degree of flexibility in exchange rate, increase the price of domestic goods and higher export relative to import can also increase the aggregate demand which can also lead to inflation.

THEREFORE, government should diversify her economic base, create an enabling environment for export oriented manufacturing to grow and instead of devaluation, trade restriction, ban on some selected imports and other monetary measures should be introduced to address the country’s balance of payment position.

THE  monetary authorities should do what they can to reduce the temporary increase in prices lest it become permanent and that the Nigerian government should always consider devaluation of currency as the last resort to the economic imbalance. It will be gainful to say that the government should regulate and maintain the stability in the exchange rate of the nation, also from the revenue generated from crude oil, the government should try to give loans to domestic industries so as take-off grants in producing their goods and services. Also, the government should try as much as possible to come up with policies (fiscal and monetary) so as to combat the deus ex machine of exchange rate era.

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FURTHERMORE, the government (state and federal) should have some decent and conducive infrastructures that attract the foreign investors around the globe. These solutions can also be achieved by diversifying the economy. This is because the average man on the street  does not understand the meaning and implication of the stability of naira until he sees the prices of goods and services come down from the present inflationary rate.

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