7 Core Reasons Why the Naira Is Falling


Why has the naira dropped?

High demand for forex by Nigerians because of preference for foreign products and services, lack of trust in Naira, and using the scarce FX to fund BDC operators are the major reasons the Nigerian currency is falling and will continue to depreciate if the government fails to address the core issues.

This article explores why Nigeria’s currency is so weak and proffers solutions on how to stop naira from further falling (long-term).


What is the actual value of Naira?

For an investor or anyone who wants to know the true value of the Naira against the US Dollar, approaching one of the close to 5,000 licensed Bureau De Change operators in Nigeria is a good place to start.

Although President Bola Tinubu-led government announced the floating of the naira, some financial analysts believe that more transparency is needed in the way government operates. It seems the government doesn’t want the naira to find its real value.

At the close of trading Monday, August 21, 2023, the I&E rate closed at $/761.32 (here is the rate), but at the black market rate which is operated by Bureau De Change operators, it was $/848 (buy) and $/875 (sell).

Example of how the Naira is falling

If you go to some malls in Abuja, you will find imported “garri”, imported table water, and nearly everything that can be sourced locally. But the elites and the politicians who can afford them go for these imported products.

The effect of giving preference to imported goods and services is that it put pressure on the local currency. While the malls sell in Naira, they need dollars, Pounds, or EUR to import these products, thereby allowing the foreign currency to gain over the Nigerian currency while the Naira continue to fall. Pressure on the local currency or stronger FX is not the best for a developing or struggling economy.

There are many factors that contribute to the falling of the Naira. The above example is just a give you a glimpse of the situation the Nigeria’s foreign exchange market.

Why is the Naira depreciating?

The fall in the Naira value is as a result of actions of individuals due to failure of the government to take certain actions. Here are the core reasons why the Naira is falling in value:

Insufficient Inflow

Analysts who are close to Nigeria’s fx operation know that there is insufficient inflow to boost the value of the naira. Nigeria announced floating of the naira, but the government is still taking actions in form of control. The government is still afriad that the naira might fall to $/1,000 or more if the naira is allowed to fully float.

Also Read:  10 Key Roles Forex Teller Points In Banks Will Be Playing In Helping CBN To Sanitise FX Market

If the government has actually allowed the naira to find its true value, then why haven’t CBN lifted ban on more than 40 items.

Low net forex reserves

The administration of former President Muhammadu and his team consistently told Nigerians that all was well with Nigeria’s economy. But a recent report by JP Morgan exposed the true situation of Nigeria’s forex reserves.

Although, the report by America multinational financial institution isn’t new to financial analysts who have been monitoring and carefully studied the recent 7-year financial audit of the Central Bank of Nigeria (CBN) under Godwin Emefilele, ousted former CBN governor.

Low net forex reserves simply mean there will be continued FX market pressures, no wonder the government desperately need NNPC Limited’s US$3bn loan to partly improve forex liquidity conditions in the market.

But if NNPC sells its $3 billion loan to the CBN while it remits the naira proceeds to the government as upfront payments for oil revenues and taxes, the decision to the CBN to start reselling fx to BDCs operators may not really address the real issue. This can’t go beyond a 3-month period, meaning the naira may likely fall when the CBN exhausts the $3 billion loan.  

Price control through sales of FX to BDC

If you are watching the situation closely, you will realize that price controls are still in place. Unfortunately, FX price control has never worked in favour of naira.

Right now, the government doesn’t want the naira to hit $/N1,000, they brought back BDCs. It isn’t the first time the apex bank would halt the sales of FX to BDC and reintroduce sales to them.

It happened in 2016 when $/NGN at the the interbank window was $/N197, former CBN boss Emefiele thought that the BDC rate (technically black market operators) which was between N230 t0 N250 to a dollar at the time was too wide, he halt sales of FX to BDCs.

A few hours after the announcement, Naira depreciated to between N280 to N285, depending on location.

As the naira continued to fall against the greenback, the helpless CBN boss Emefiele brought them back, but dollar to Naira was already at $/520 or more at the parallel market.

Again, the CBN bans forex sales to BDC in July 2021. This time, the apex bank says there were agents of money illicit money transfers.

Between that timel till now, coupled with announcement to “controlled” floating, the naira has depreciated to N883/N910 (buy/sell) at BDC rate.

What sales of FX to BDCs means is that we are going to see an ephemeral appreciation of the Naira. Between three to five months, the BDC operators will take their FX allocation to black market, meaning the naira will be back to its depreciation path against the Dollar.

Bringing back the BDCs mean pegging is back. It may be an unofficial subsidy on forex. FX price control through BDCs has never worked and may never work.

Also Read:  USD/NGN Exchange Rate May 9, 2022

In 2021, CBN ceased selling FX to BDC operators, they were accused of sabotaging the FX efforts of the government.

But they now back to the FX value chain, meaning that the government is going to be ‘funding’ BDCs. As an investment advisor would ask, “Why give your scarce $ to BDCs, when Nigerians have moved to P2P?

Uncleared forex backlog

Who wants to bring their investment to Nigeria when they are not sure they will be able to repatriate their profits?

In July 2022, Emirate Airlines has to reduce number of flights to Nigeria because the international airline was unable to repatriate $85 million funds.

Has the CBN cleared the backlog? Has Emirate Airlines returned to Nigeria, if NO, then that’s an indication that the CBN reforms are not working. Emirates will return if they can get their fx. Emirate Airlines isn’t the only affected companies, anyways.

Declining trust in Naira

If you saved N5 million in June 2015, by June 2022, the value of your Naira savings have reduced by more than 50% even if you added interest.

A colleague jokingly said, “Big churches now convert their Sunday offerings to Dollar so as not to minimize their losses due to continued depreciation of the Naira.”

For instance, the value of naira to a dollar in June 2015 was N196.92, but in June 2022, naira fell to $/414.72 at the official rate (with 100% pegging in place).

What this means is that within seven years, the Nigerian currency fell by 52.52% against the US Dollar. The depreciation of Naira doesn’t only affect investors, it will also add foreign debt burden of the government. For instance, depreciation of the Naira added at least N9 Trillion to Nigeria’s foreign debt burden between June 2015 to June 2023.

If within seven years, a currency recorded more than 50 per cent loss of its value and between May 2023 to August 2023 – from N461 to NN756 -, it recorded 40 per cent further loss, making multinational companies recording losses.


Six Nigeria’s biggest companies such Airtel Africa Plc, Dangote sugar refinery, Cadbury, and Nestle recorded a combined $385 million losses.

While Alh Aliko Dangote founder of Dangote group praised the FX policy of the new government despite lossing billion of Naira, the trust of Nigerians in naira have depreciated.

Some Nigerians who exposed to foreign trade and investment no longer trust the Naira. They are taking out their naira deposits to buy dollar and hold or they holding a portion of their money in USD.

The apex bank may call them speculators, but they are protecting their hard-earned cash as they see the politicians and policy makers themselves not showing any sign to commitment to rebuilding the Naira. Politicians spend FX at party meetings and campaigns.

Inflated estacode

This travel allowance of political office holders is a contributing factor why the Naira is falling. Lawmakers and senior civil servants prefer to take a 2-day seminar to foreign countries even when there are resources such in Nigeria. They do this because of hundreds of dollar estacode they will get.

Also Read:  Nigeria’s BDCs Operation May Become Extinct - Financial Analyst

Foreign school fees:

That said, schools open in September, that’s when Nigerians who have been offered admission in universities in the U.K., United States, and Europe will flock the Trade monitoring system of the CBN for Personal Travel Allowance (PTA).

The more people we have going out of the country for quality education, the more the demand for dollar, meaning they take naira to buy dollar, the more the Naira will continue to depreciate.


Will dollar fall against Naira in 2023?

If Nigeria cannot earn sufficient FX to meet forex demands, continues to import fuel it has capacity to refine at home, if those at helms of affairs continue to use Naira to buy dollar, then there is no way the dollar can fall against the Naira.

The indicators for Naira to gain against the Dollar is not in place. But don’t forget that the plan by the government to sell some of its assets to raise and sell its stake in the most joint-venture oil and gas assets to raise $17 Billion for the government will make impact in the FX market, that is if the revenue is adequately used.

Do Nigeria have the FX reserves to defend its currency? It’s NO. The weaknessses of the government is like a butter for the FX speculators in Nigeria. So, there are no signs that dollar will fall against the Naira for the rest of 2023.

Solutions to the falling Naira:

Certainly, the government has a huge role to play to make the Naira regain its value. But here are some of the measures to boost the value of the naira.

An oil-producing country that prides itself as the economy giant of Africa, but cannot refine its fuel consumption is a huge problem. You can expect the Naira to rise (as outline in this article) when you continue to import inflation. Through importation of refined fuel, Nigeria is throwing in the ocean its opportunity to earn FX as earnings from crude oil sales.

The government should allow the BDC operators compete with P2P instead of selling the scarce FX to the same people who control the black market.

Quality education at home, overhauling of the school curriculum to reflect the digital age is a must if the government wants to drastically reduce the number of Nigerians who source FX for payment of their foreign school fees.


  • Opeyemi Quadri

    Ope is a finance writer and researcher with 10+ years of experience in content creation. His interests cut across real estate investment, foreign exchange, government policies and politics. He has a knack for breaking down complex financial concepts in a way that is easy to understand. Ope is available on Twitter @OpeQuadri.


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