In recent times, dollar has risen against Naira repeatedly. This trend has constituted a national issue in Nigeria. Businesses have been affected adversely due to the increasing rise of the US dollar against the Naira. Every social media platform talks about it and every blog carries the news.
But the question remains: Why is dollar rising against Naira? Why is the exchange rate so high?
This question is what this blog post will try to answFundamental
1. Economic Fundamental
You cannot discuss exchange rates without discussing the values a country places on her economy. Issues such as GDP (Gross Domestic Product) cannot be overlooked.
How much goods and services Nigeria produces for both internal consumption and export determines the value of the Naira.
Due to the fact that Nigeria produces less or that they consume less of what they produce, the Naira is weakened against the dollar in the international market.
This is why people like Reno Omokri are encouraging Nigerians to patronize and consume Nigerian made products to strengthen the Naira.
Drive INNOSSON
Wear made in ABA cloths
2. Fiscal and Monetary Policy:
There are policies of the government that can affect the economy and value of Naira. Just a year ago, the CBN initiated an idea of currency redesign. The policy led to so many economic decisions which in reality affected the value of Naira. Many people changed their Naira to Dollar. Many used their Naira cash to buy goods that they did not necessarily need at the moment just to get value for their money. Other policies like currency depreciation, fiscal deficit, etc can make the dollar rise or naira rise against the dollar.
3. External Factors:
The exchange rate can be affected by external Factors such as rise or decline in the price of oil which is Nigeria’s main export commodity. The decline in the oil price will reduce the GDP and hence crash the Naira. Investors’ sentiments and global economic policies can shape the Naira value.
4. Structural Weakness:
The structural Weakness of Nigeria has made it difficult for the Naira to appreciate in the international market. For instance, the overdependence on oil and lack of diversification in the production has limited the GDP of Nigeria.
Of course dollar will continue to rise against Naira if the GDP is not taken care of and grown.
5. Confidence and Perception:
Investors’ confidence on the economy will either attract them or repel them. If investors invest in the Nigerian economy the economy will thrive and the Naira will grow. But investors shy away from Nigeria because of the increasing security challenges, unsustainable government policies and more.
Even the local population has no confidence in the Naira again. Everybody wants to be paid in dollars. Go to events and see people that spray dollars. You will notice that they are treated as kings, called special and dignified names like “pablo”, “baller” etc.
Conclusion
The rising dollar against Naira is a result of complex factors ranging from economic and fiscal policy and external factors. These are issues that cannot be neglected in any economy.
In Nigerian economy however, insecurity and structural formation of the government play greater role in wading off investments and devaluing the Naira, hence the rise of dollar against Naira.
You may also like: 7 Daily Habits of Millionaires You Can Follow