Editor’s note: This story is part of Mariblock’s “State of Fiat” coverage. Digital assets such as bitcoin are seen as competitors to central bank money. Therefore, we consider informing our audience of the state of their local currencies worthwhile.
The Nigerian naira saw a record devaluation in 2023, worsening to 1000 naira per United States dollar in the fourth quarter.
Experts predict that the naira will continue its downward trend in 2024, hitting its lowest performance since 1999.
- According to Bloomberg, the naira was the world’s third worst-performing currency last year.
- The currency lost 55% of its value, ranking just below the Lebanese pound and Argentine peso on the list of the most devalued currencies.
- This was despite the Nigerian government’s efforts to slow down the naira’s rapid fall and arrest the resultant inflation, now at 28%.
- 2024 is not set to be any better. Experts predict that the country’s heavy dependence on declining oil production and significantly diminished foreign exchange reserves indicate further devaluation.
- Bloomberg, quoting a note from Vetiva Capital Management Ltd to its clients, warned that the naira will slip even further unless the government seeks international investment or increases oil production.
The investment bank said that “a significant rise in external reserves, material increase in foreign exchange inflows, and reduction in money supply” will be positive for the naira’s outlook in the new year.
- The Bola Tinubu-led Nigerian government, upon assumption of office last May, announced the removal of costly fuel subsidies and implemented forex reforms that unified foreign exchange rates across official and unofficial markets.
- While international organizations hailed the move as the right one, it immediately heralded the devaluing of the naira by over one-third. The naira has been in free fall since then.
- Nigerian authorities attempted to arrest the naira’s rapid slide by sourcing for liquidity in USD through soliciting foreign investment and crude oil forward sales, Mariblock reported.
- In October, Nigeria’s finance minister, Wale Edun, said that the country was expecting an immediate inflow of up to 10 billion dollars to provide relief for the illiquid forex market in Nigeria.
- To further prop up the naira, more FX reforms were introduced, but few results have been evident from these moves.
- With short-term debt obligations overdue, Nigeria is set to see less forex liquidity in its economy, and as such, further devaluation of the naira is inevitable.