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Nairaland Forum / Nairaland / General / Pangs Of Naira Devaluation. (119 Views)
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Pangs Of Naira Devaluation. by VGSocial: 9:40am On Sep 18, 2020 |
Pangs of Naira devaluation Naira devaluation is an act that has been practised by the Nigerian government since the 1980s to combat trade imbalances. The main reason for devaluing the Naira is to find leverage in balancing trade as exports increase and imports decrease in the country. The unpredictable and erratic monetary tussle between the Nigerian Naira and foreign currencies started in 1986 when the Second-tier Foreign Exchange Market (SFEM) got implemented by the then Head of State, General Ibrahim Babangida. The SFEM got implemented with a notion that a weaker exchange rate would quickly bring about industrialization in the country. Admittedly, Naira devaluation favours a better balance of payment by shrinking trade deficits. It implies that a country that devalues its currency can reduce its deficit because of the strong demand for cheaper exports. The significant benefit of the devaluation is the increase the amount available to share from the federal allocation account, which is between the federal and state governments which, in turn, implies the availability of more money for the government. The impact of the COVID-19 pandemic on our economy has resulted in further devaluation of the Naira. Although this can be seen as an added advantage for the government, as it attracts foreign investors, and also creates job opportunities for those that are unemployed. However, as much as devaluation is needed, it has its cons. The devaluation of Naira hurts local businesses that are involved in importation. Therefore, this results in inflation as it increases the price of goods. More so, devaluation limits the purchasing power of Nigerians, as travelling out of the country for health emergencies or educational purposes becomes more expensive. It also results in reduced real wages, because the worth of money at hand would no longer cater to things as it did previously for citizens, who have debts in foreign currencies, mortgages, etc. Finally, a developing economy like Nigeria that relies on the importation of raw materials may experience huge costs from naira devaluation, which makes goods more expensive for the masses. Before the implementation of the Second-tier Foreign Exchange Market, the Naira exchange rate to US Dollars was 90 kobo to $1. However, by the end of Babangida’s administration in 1993, the exchange rate was 17 Naira to $1. Till date, Nigerians still hope for a time when a strong currency will be an indication of ‘strong’ economy. For a long while, Nigerians have only experienced untold hardship due as Naira slumps in comparison to the dollar. Unfortunately, the much-awaited industrialization from Naira devaluation is still a mirage. |
Re: Pangs Of Naira Devaluation. by Enudapan: 9:45am On Sep 18, 2020 |
Nna eh! No qualms 1 Like |
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