Should you exchanged your Naira for USD in 2015 and held it till September 2025, that $1, when transformed again to Naira, can be price about 644.14% extra.
Nonetheless, the trade worth of the Naira has depreciated through the years as inflation has eroded its capacity to function a dependable retailer of worth.
Should you exchanged your Naira for USD in September 2024 and held it, the $1, when transformed again to Naira, can be price 11.12% much less; The Naira has strengthened.
So, the query naturally is Why has the Naira gained power? And what can maintain its power?
First, an introduction to currencies
A foreign money observe represents a authorized means to commerce in items and providers. If I wish to purchase a luxurious flat in Nairobi, I would like Kenyan shillings or US {Dollars}. I pays with US {dollars} as a result of the US is the worldwide settlement foreign money. Equally, if Kenyans need Nollywood films, they’ll want Naira or US {dollars}.
Thus, if I’m in Nigeria and purchase Kenyan items, the worth of the Kenyan shilling will rise, and the worth of the Naira will fall.
What made the Naira lose 644% in 10 years?
In 2023, the Central Bank of Nigeria’s Governor, Yemi Cardoso, throughout a presentation to the Home of Representatives, disclosed that oil revenues had declined from $ 93.89 billion in 2011 to $31.4 billion in 2020.
In the meantime, international schooling bills between 2010 and 2020 grew to $28.6 billion, and international healthcare bills rose to $11.01 billion throughout the identical interval.
The naira thus misplaced worth due to the simultaneous lower within the provide of {dollars} from crude oil gross sales and the rise in demand for {dollars}. The CBN Governor listed the next as key demand drivers for international foreign money in Nigeria
- Education overseas
- medial tourism
- meals imports
So, what has modified?
Has schooling and medical spending in USD diminished? Are meals imports down?
For schooling and medical tourism, utilizing the most recent CBN Financial Report dated Q1 2025, the CBN says
“The present and capital account recorded a decrease surplus, pushed by widened deficits within the providers and first earnings accounts, coupled with a decline in remittances influx”.
To translate, Nigeria remains to be importing invisible items reminiscent of schooling and medical tourism, and fewer remittances are coming in.
In keeping with the Nigerian Bureau of Statistics’ report for Q2 2025, Meals imports elevated by 32.60%.
Thus, to summarise, demand for international trade to import meals, fund medical tourism, and help international instructional spending has proven no materials lower, utilizing the most recent studies, after all.
So why is the Naira strengthening?
The Reply is elevated Overseas Portfolio Funding (FPI) and a fall in US rates of interest.
The yr 2025 has seen uncertainty within the world financial system, pushed by the America First insurance policies of the Trump administration and document fiscal deficits in the US.
This uncertainty had led to a sell-off of USD greenback belongings. If we monitor the greenback’s efficiency utilizing the DXY index, which tracks the USD towards main currencies, we see the USD down 10.75% YTD. The US Greenback is down towards all main currencies, the Euro has gained 12%, and the GBP has gained 7%.
Asset supervisor in search of yield elsewhere.
In December 2024, the best-performing world asset class was US Equities, which returned 28% when measured by the VTI fairness ETF. Over the previous 5 years, from 2019 to 2024, US equities returned 13.8%, in comparison with Rising Market Bonds (EMLC), which returned -2.1% over the identical interval.
As of June 30, 2025, we see a reversal: the best-performing world asset class is now international shares and bonds. The Rising market bonds (EMLC) at the moment are up 12.5% whereas US shares (VTI) publish 5.6% and US bonds (BND) publish 4%.
FPI poured into Nigeria
The Demand for Overseas bonds has seen FPI pour into Nigeria. Within the newest CBN month-to-month financial report dated Might 2025, Capital influx elevated to US$1.70 billion, from US$0.79 billion within the previous month, with portfolio funding rising to US$1.35 billion, from US$0.72 billion.
The demand for international bonds has led to portfolio managers promoting FX to the Central Bank of Nigeria to purchase Naira, which they then use to buy Naira devices.
The current power of the Naira is the influx of $ from FPI. While Nigeria is posting a constructive commerce quantity, which means exports are greater than imports, it is usually posting document $ debt and debt servicing numbers. In Q1 2025 alone, Nigeria paid $1.39 billion to service its exterior loans.
Crude oil manufacturing has remained steady, however it’s nonetheless far beneath the budgeted numbers for 2025, and demand for USD to fund schooling, well being, and meals imports has not abated.
The autumn within the US Fed charges has additionally contributed to an increase within the trade worth of the naira. So long as the US FED continues to cut back charges, the move of FPI to Nigeria will develop, all issues remaining fixed
In closing, the query actually is what occurs when the CBN decides to cut back its charges as effectively. Will FPI flee? Then what occurs to the Naira?
Be First to Comment