The eNaira was presented as a practical solution to these long-standing economic problems, even though it could never solve the problem of Nigeria’s unstable exchange rate and dwindling foreign reserves on its own. Government-funded cash transfer programs in Nigeria are also notorious for not reaching the poor Nigerians who need them most. About 75 percent of informal cross-border trade in West Africa is not reflected in official statistics, and 38 million Nigerians don’t have access to formal financial services. The bank promised that the eNaira would help increase cross-border trade, improve financial inclusion, strengthen social interventions, and bolster Nigeria’s monetary policy and payment systems. The Central Bank of Nigeria proposed an electronic currency as a solution to these economic problems and others. The impact of these figures becomes clear when one considers that imports make up 65 percent of Nigeria’s total trade and that the naira-dollar exchange rate is central to most of these transactions. Headline inflation in Nigeria is currently above 16 percent, and the official exchange rate hovers around 411 naira to the dollar (and at more than 560 on the street). The value of the naira has plunged roughly 160 percent against the dollar since 2012, a steep drop that has spiked inflation. Since oil prices crashed in 2014, the Nigerian economy has struggled to stay afloat-and so has the naira.
The government’s reasons for introducing the eNaira were clear. But any concerns about popular interest in the currency were quickly put to rest when the website for the new currency-the eNaira- garnered more than 1 million impressions online just 24 hours after launching in late September. It said the coming auctions would be settled between one week and 30 days - instead of the 60-day contracts – and would help meet manufacturers’ demand.When Nigeria announced its plans to become the first African country to digitize its currency earlier this year, many Nigerians were skeptical, questioning how a digital currency worked and whether Nigeria needed one. On Monday the central bank announced it “will sustain its intervention” in the official market to boost liquidity, this time through shorter dated forwards. This seems unlikely to be on the agenda of the central bank any time soon.
“Unifying the foreign exchange rate”, the IMF said in its report, would help regain investor confidence.īut in order to do that, the report argued, foreign exchange market restrictions would need to be removed. Though the sales have increased liquidity in the official market, analysts and economists are sceptical as to whether these interventions are sufficient to address demand.Īnother problem, highlighted by the International Monetary Fund last week, is the central bank’s sanctioning of more than five exchange rates – in addition to the interbank and black market rates, there are official rates for consumers wanting dollars for school and medical fees abroad, for Muslims making the pilgrimage to Saudi Arabia, and for anyone wishing to buy hard currency at exchange bureaus. The sales were cast by Godwin Emefiele, the central bank governor, as an attempt to strengthen the naira.
Reluctant to introduce the free currency float that it promised last June, which could have enabled fresh dollar inflows from investors who had been wary to bring hard currency into the country, the central bank tried to boost liquidity in the official market through more than $1bn in forward sales since February. Analysts said the gap between the official rate of just over 300 to the dollar and the black market one indicated the scale of unmet demand for hard currency in Africa’s most populous nation. In the absence of adequate supplies of dollars in the official market, businesses and individuals have been forced to buy hard currency on the black market, stoking demand there and eventually weakening the naira to a record low of 520 in February. Chronic dollar shortages in Nigeria began after oil prices crashed in 2014, worsened as the central bank restricted supplies of hard currency, and are unlikely to end any time soon.