Is Nigeria finally winning the battle against FX instability? The Central Bank of Nigeria (CBN) thinks so, pointing to a potent combination of increased dollar inflows and stricter market controls as the driving force behind the recent strengthening of the naira. But here’s where it gets controversial… is this stability built on solid foundations, or is it a temporary fix?
Victor Eboh, the CBN’s Director of Monetary Policy, recently shared insights into this developing economic narrative during a training session for journalists organized by Premium Times Academy in collaboration with the CBN in Abuja. He emphasized that the recent gains witnessed in the foreign exchange (FX) market are directly linked to the CBN’s determined efforts to restore confidence and inject transparency into the system. The naira, which had been under immense pressure, saw a notable appreciation, reaching N1,421 against the dollar in the official market on November 1st. This appreciation offered a glimmer of hope to businesses and individuals grappling with the high cost of imports and the overall impact of a volatile exchange rate.
Eboh boldly stated that the naira had been “overvalued” for years. The current CBN leadership, he explained, took the decisive step of allowing the currency to find its true value by dismantling the structures that created distortions and granted preferential access to foreign exchange. This move, while potentially painful in the short term due to increased import costs, was deemed necessary for long-term economic health. The exchange rate had previously soared to nearly N1,800 per dollar at the height of market turbulence. However, thanks to the CBN’s interventions, it has since stabilized, hovering around N1,440/$ in the official window. And this is the part most people miss… the CBN isn’t aiming for an artificially strong naira. Instead, their focus is on achieving sustainable stability.
“Whether you are a big man or not, we all go to the same market now for dollars. There is no longer unauthorized access to FX,” Eboh declared, highlighting the level playing field the CBN is striving to create. He underscored the importance of stability over an unsustainably strong currency, stating, “Stability is more important than a strong naira that cannot be sustained.” This statement raises a critical question: are Nigerians prepared to accept a potentially weaker, but stable, naira if it means a more predictable economic environment?
According to Eboh, the enhanced transparency and the creation of a unified market access system have significantly boosted investor confidence. This, in turn, has led to a surge in FX inflows, providing much-needed relief to the Nigerian economy.
EXTERNAL RESERVES SWELL TO OVER $43 BILLION
In a further sign of progress, Eboh revealed that Nigeria’s external reserves have climbed to over $43 billion. To put this in perspective, this level of reserves provides approximately nine months of import cover. He contrasted this favorably with Ghana, which has about three months of import cover, and other West African countries with even less. “We have a lot of good news to report,” Eboh proclaimed.
He also highlighted that Nigeria’s balance of payments and current account remain in surplus, further bolstered by initiatives designed to increase FX liquidity and strengthen external sector conditions.
Turning to the persistent issue of inflation, Eboh acknowledged that lending rates remain high. However, he argued that this monetary tightening is essential to restore price stability. He cautioned that allowing inflation to run rampant would erode purchasing power far more drastically than the temporary constraints imposed by higher interest rates. “You have to choose which one comes first. High inflation is a limitation to growth. It is not about having money in your hand but about what that money can buy,” he explained.
The CBN, Eboh emphasized, has fully embraced orthodox monetary policy, focusing on its core mandates and leaving fiscal interventions to the government. “The Central Bank cannot be Minister of Agriculture, Minister of Aviation and Minister of Transportation at the same time. That is why we have returned to full orthodoxy,” he asserted. This shift in approach signifies a return to the CBN’s primary role of managing monetary policy and maintaining financial stability, rather than engaging in sector-specific interventions.
Eboh also reassured the public that Nigerian banks remain strong and sound, despite the ongoing recapitalization exercise. He clarified that the recapitalization is not a response to distress within the banking sector but is instead aimed at positioning the financial sector to effectively support President Bola Tinubu’s ambitious $1 trillion economy target. The CBN is closely monitoring monetary aggregates to prevent excessive money supply growth, which could fuel inflation.
So, is the CBN’s strategy working? Are we on the path to sustained FX stability and a stronger economy? What are your thoughts on the CBN’s approach? Do you believe that prioritizing stability over a strong naira is the right move? Share your opinions in the comments below!