Why naira stability is the cornerstone of Nigeria’s economic future

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In the heart of every thriving nation lies a stable currency—a symbol of trust, resilience, and economic vitality, mirroring the strength of the nation’s economy. When a currency is unpredictable, the cost of living soars, business confidence wanes, and economic progress is hindered. However, when stability is sustained, it unlocks opportunities for inclusive growth, ensuring that prosperity reaches every segment of society. For Nigeria, the Naira is more than just a medium of exchange; it is the lifeblood of its economy, the foundation upon which businesses grow, investments flourish, families thrive, dreams are realised, and households find financial security. Yet, in recent years, the naira has faced relentless challenges, from volatility to devaluation, casting a shadow over the nation’s economic potential.

“EFEMS automates trade matching, reduces speculation, and provides real-time price data, ensuring the Naira reflects its true market value.”

As the effort towards economic stabilisation heightened, optimal pathways needed to be effectively considered, and the key to unlocking that future lay in securing Naira’s stability. What if a stable Naira could be the way for inclusive growth, job creation, and a brighter tomorrow for millions? This article explores why Naira stability is not just an economic goal but a moral imperative—a cornerstone upon which Nigeria’s prosperity and global competitiveness must be built.

Understanding naira stability dynamics

Currency stability is vital for economic growth, influencing inflation, investment, and economic confidence. The Nigerian naira, however, has struggled with volatility due to its heavy reliance on oil exports, exposing risks of an undiversified economy. While the Central Bank of Nigeria (CBN) intervenes to stabilise the currency, inconsistent policies, inflation, and investor concerns continue to pose challenges.

Read also: Naira stability lowers business costs in January

The stability of the Nigerian naira is influenced by key economic factors, including inflation, foreign exchange reserves, government policies, and global oil prices. High inflation, which stood at 29.9 percent in January 2024, weakened the Naira’s purchasing power, increasing the cost of living and business expenses. Forex reserves, which were $33 billion as of February 2024, play a crucial role in stabilizing the currency, but fluctuations in oil revenue impact their availability. Government policies, such as multiple exchange rate systems and CBN interventions, have historically aimed to stabilise the Naira but often create market distortions and discourage foreign investment. Additionally, Nigeria’s dependence on crude oil exports makes the Naira vulnerable to global oil price shocks, as seen in the 2020 oil price crash, which led to severe depreciation.

Historically, the Naira has faced persistent devaluation. The Structural Adjustment Programs (SAPs) of the 1980s-1990s led to depreciation from ₦0.89/$ to ₦21.89/$. The 2016 recession saw another sharp drop to over ₦300/$, while in 2024, forex shortages pushed the Naira close to ₦2,000/$ before stabilising. Ensuring lasting stability requires economic diversification, consistent monetary policies, and investor confidence to drive sustainable growth and improve economic resilience.

The Central Bank of Nigeria (CBN) introduced the Electronic Foreign Exchange Matching System (EFEMS) on December 1, 2024, to enhance transparency and efficiency in the forex market. EFEMS automates trade matching, reduces speculation, and provides real-time price data, ensuring the Naira reflects its true market value. Since its implementation, the Naira has appreciated against major currencies like the British pound and euro, as dealers adjust exchange rates accordingly. By eliminating market distortions and speculative pressures, EFEMS has played a key role in stabilising and strengthening the Naira. The Nigerian naira demonstrated notable stability in February, despite closing the month with a slight weakening of 1.6 percent in the official market. The parallel market, however, saw a sharp appreciation of 6 percent, indicating improved liquidity in the retail foreign exchange segment. This mixed performance highlights the complex dynamics influencing the naira’s value.

Over the past few months, Nigeria’s foreign exchange reserves have reduced by US$4 billion. Despite this reduction, the naira has maintained a consistent value. The Central Bank of Nigeria (CBN) has introduced a new framework for forex trading, which has led to clearer and more transparent currency transactions. These measures have contributed to reducing uncertainty in the market.

Foreign investment has also played a role in stabilising the currency. There has been a noticeable increase in the interest of investors in Nigeria’s fixed-income market, particularly in treasury bills and government bonds. The resultant funds have added to the supply of foreign exchange and helped to support the naira.

Another contributing factor is Nigeria’s performance in crude oil production. In January, the country recorded a total crude output of 1.7 million barrels per day, an increase from 1.48 million barrels per day in December. With oil prices averaging around US$74 per barrel, the resulting revenue has bolstered forex reserves and helped to offset external pressures on the naira.

The operations of Bureau De Change (BDC) operators have also had an impact. An increase in the allocation of foreign exchange to these operators has led to a reduction in the gap between the official and parallel market rates. Data from February indicates that the parallel market rate improved from N1,600 to N1,500 per US$1. The CBN has now extended the period for BDC operators to access the Nigerian Foreign Exchange Market for weekly purchases until May 2025. Under this arrangement, BDCs are permitted to buy up to US$25,000 each week from authorised dealers.

Towards a more stable Naira

The stability of the Naira remains a cornerstone for Nigeria’s economic transformation, influencing inflation control, investment confidence, and financial security. Despite recent policy-driven improvements, the journey to sustained stability requires long-term strategic execution. We submit that aligning fiscal, monetary, and trade policies can help achieve the desired stability while ensuring inclusive economic growth.

An optimal stabilisation pathway must combine ongoing short-term reforms with long-term growth strategies that include fiscal discipline, inflation control, and foreign exchange market efficiency. If well implemented, Nigeria’s real GDP growth could exceed 5 percent in 2025, with inflation easing to a targeted 15 percent from the record-high levels of 34.8 percent in 2024. Achieving these targets will require public-private sector collaboration, trade liberalisation, and enhanced investment incentives.

Furthermore, macroeconomic imbalances must be addressed through proactive fiscal reforms, including revenue-based fiscal consolidation and expenditure prioritisation. Strengthening financial institutions, boosting domestic production, and improving regulatory transparency will help mitigate external vulnerabilities such as global oil price shocks.

Similarly, learning from the reform mistakes of 2024 and refining even more successful policies will be pivotal to getting to the promised land. Enhancing economic performance and strengthening the macroeconomic environment will be critical to revitalising the economy and ensuring that the relative exchange rate stability witnessed in the last two months is sustained.

Ultimately, the Naira’s stability is not just a monetary concern—it is a fundamental pillar of Nigeria’s economic resilience. A coordinated approach among policymakers, businesses, and financial institutions is crucial for ensuring sustainable growth, reduced poverty, and a more globally competitive economy.