Forex: Assessing policies that disadvantaged naira

Local traders and consumers are agitated, workers are complaining.

CBN clears all valid fx transactions, eliminates legacy backlog

Forex: assessing policies that disadvantaged nairaBy Deborah Coker

The value of naira has witnessed downward trend in the recent years. How this trend would be curtailed has been discussed at several economic fora, with economists, scholars and the man on the street proffering solutions.

The economic reforms of President BolaTnubu, which included the floating Nigeria’s legal tender, against international currencies; and the unification of exchange rate do not seem to yield desired effects.

In fact, it took the worst hit in the foreign exchange market in recent weeks going as low as N1600 per one U.S. dollar.

Fiscal experts have pointed at various factors as putting pressure on naira, including Nigerians unquenchable taste for imported materials, a mono-economy which is built around only export.

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Some others blame it on the hangover from colonialism which ensured that expatriate workers were paid with hard currencies while local staffers were paid with local currency.

Even after gaining independence, the remnants of this unequal system persist, manifesting in the unequal treatment of foreign workers and local employees in Nigeria.

The payment of foreign workers in dollars, while Nigerian colleagues receive wages far below the conversion rate, is a blatant example of this ongoing injustice.

The consequences of this practice extend beyond mere discrimination; they have profound implications for Nigeria’s economy as seen today.

The alarming depreciation of the Naira against the dollar is exacerbated by the demand for foreign currency to pay professional services in dollars.

This not only erodes confidence in the domestic currency but also widens socioeconomic disparities within the country.

Whatever factors are responsible for naira’s low value against leading international currencies do not matter now, what is paramount is reining in the decline in value and this calls for concerted action.

Local traders and consumers are agitated, workers are complaining.

“My family is now living one day at a time (and) trusting God,” said trader Idris Ahmed to an international newswire service provider.

His sales at a clothing store in Nigeria’s capital of Abuja have declined from an average of $46 daily to $16.

Nigeria’s currency, the naira, further plummeted to 1,524 to $1 on Friday, reflecting a 230 per cent loss of value in the last year.

The glaring income inequality between foreign workers and their Nigerian counterparts within companies operating in Nigeria is a deeply concerning practice that perpetuates historical injustices rooted in the colonial legacy.

This practice exacerbates existing economic disparities and reinforces the master-servant dynamic that has plagued the region for centuries.

Income inequality in Africa, including Nigeria, has been entrenched since the colonial era when European settlers exploited the vast resources of the continent while systematically marginalising and impoverishing indigenous populations.

This exploitation was not only economic but also deeply ingrained in social and political structures, leading to a stark income gap between Africans and their colonial overlords.

Africans were often relegated to low-paying labour roles while Europeans enjoyed privileged positions with significantly higher incomes.

The absence of explicit prohibition on paying salaries in foreign currency in relevant legislation, such as the Central Bank of Nigeria Act and the Foreign Exchange Act, heightens regulatory ambiguity and allows such exploitative practices to persist unchecked.

Legislative experts therefore argue that urgent amendments to these laws are imperative to address this issue effectively and ensure equitable treatment of all workers in Nigeria.

Similarly, financial experts say the significant capital flight resulting from these unequal salary payments far surpasses most factors contributing to Naira depreciation, such as school fees and medical treatments abroad.

According to them, ending the practice of paying foreign workers in dollars is not only a matter of economic justice but also a crucial step towards dismantling neo-colonial structures and building a more equitable and prosperous Nigeria for all its citizens.

Also the notion of maintaining reserves in foreign lands, dubbed “foreign reserves,” is not only repulsive but also counter-intuitive to Nigeria’s economic sovereignty.

“Contrary to the practices of other nations like the United States, Britain, France, and Japan, which keep their reserves within their own borders, Nigeria’s adherence to this practice raises questions about its colonial legacy’’, said Sen. Ned Nwoko, in a statement in Abuja. 

The primary argument often put forward to defend the existence of foreign reserves is the need to balance trade.

However, this argument lacks merit when considering the limited number of traders involved in importing goods into Nigeria, which constitutes a negligible fraction of the population.

Nwoko argues that it is time to prioritise the domestication of our reserves, anchoring our economic stability firmly within our borders.

“If we don’t get our currency to be needed, valued, known, and quoted, no one is coming to do it for us. Continued acceptance of the dollar as legal tender undermines our economic sovereignty and must be halted.

To match words with action, Nwoko, Delta-PDP, and Solicitor, Supreme Court of England and Wales sponsored a motion before the Senate on the use of the Naira as the only legal currency in the country.

The Bill  is entitled “Urgent Call for Immediate Prohibition of the Use of Foreign Currencies in Nigeria” and Bill for an Act to Alter the Central Bank of Nigeria Act, 2007, to Provide for the Prohibition of Foreign Currency Payment for Remuneration and for Matters Connected Therewith.”

Nwoko asserted that as the nation grappled with the free fall of the Naira and the near-collapse of the economy, there was only one short-term, medium-term, and long-term solution.

According to him, that solution is the use of the Naira as the only legal currency in the country as well as ending policies that disadvantaged the Nigerian currency.

In 2023, the House of Representatives had asked the Central Bank of Nigeria (CBN) to address recurring depreciation of the naira against the dollar.

The lower legislative chamber had passed the resolution during a plenary session after the adoption of a motion sponsored by Ismaila Haruna Dabo, from Bauchi State.

The House had also resolved to investigate the alleged use of U.S. dollars and other foreign currencies as legal tenders for domestic transactions in the country.

The naira has consistently experienced variations in value ever since the CBN introduced the currency float policy, which now permits market forces to determine exchange rates.

While moving the motion, Dabo said the “alarming exchange rate” has impacted Nigeria’s economy, causing “untold hardship” due to increased demand for dollars and a dollar shortage.

He had added that about 90 per cent of Nigeria’s total export earnings were from oil, which is the mainstay of the country’s economy.

However according to Nwoko while the country may not have many products to expert to the global market, it does attract significant number of visitors.

“When these investors understand that the dollar will not be accepted as legal tender in Nigeria, they begin sourcing Naira from their commercial banks and Bureau de Change (BDCs) even before arriving in the country.

“This increased demand prompts banks abroad to source and stock up Naira, making it readily available for exchange.

“Upon arrival, visitors can also obtain Naira from our BDCs. Imagine millions of visitors and prospective visitors from all over the world sourcing Naira; our local currency becomes increasingly relevant.

“This scenario creates a simple supply-and-demand dynamic, where the demand for Naira increases, making it more relevant globally.

“If we fail to create a need for Naira in other nations, their BDCs won’t even recognise it, let alone accept it for exchange“, the lawmaker said.

He also stressed the need to redefine the role of BDC, adding that the prevalence of BDCs in Nigeria must align with currency policies aimed at shunning unfairly fall of the Naira.

“BDCs should serve as facilitators of currency exchange for foreigners, promoting the use of the Naira in domestic transactions.

“By enforcing regulations that prohibit the acceptance of foreign currencies for local transactions, we redirect the focus of BDCs towards selling Naira and retaining foreign currencies for outbound travelers.

“Ambiguous practices, such as students paying school fees abroad, must also be addressed by BDCs in commercial banks”, Nwoko also said.

“Until there is enough supply to meet FX demand, the ability to stabilise the exchange rate will be difficult.

“It might force the CBN to use its limited reserves to intervene to stabilise the rate,” Yemi Kale, partner and chief economist at KPMG Nigeria, told a national daily.


News Agency of Nigeria.