The naira, a symbol of Nigeria’s economic sovereignty and resilience, stands at the centre of a battle that defines the nation’s financial future. Over the years, its value has fluctuated under the weight of external pressures, policy inconsistencies, and structural challenges. For many Nigerians, the naira’s strength represents economic stability and a sense of national pride. Yet, its current struggles echo the country’s broader challenges—rising inflation, exchange rate instability, dwindling foreign reserves, and persistent economic vulnerabilities.
At the 2025 budget presentation, the President stated that the budget assumption is predicated on an exchange rate of N1500/$ (as opposed to MTEF imprimatur of N1500/$) for the year ahead, triggering a wave of discussion as to what the true value of the naira will be in the year ahead. In the last 18 months, the naira has depreciated from an average of N800/$ to N1900/$. This implies that the currency has lost more than two and a half of its value. It is now considered amongst the worst-performing currencies among the world’s emerging market currencies, leading us to ask, is the naira on a free fall, or has it reached its point of inflection?
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To this end, a proactive measure needs to be enacted with great caution and a sense of urgency to effectively tame the dwindling force behind the stability of the naira, which at this point is like a salt in the face of a wallowing economy. The question remains: will the naira emerge stronger, or will it continue to waver under mounting pressures?
Is the Naira “heavily” undervalued?
The Naira, once an envy of other nations, has experienced a significant decline in recent years with its value tumbling and plummeting to record levels, creating a deluge of economic shocks. As the lifeblood of the nation’s financial system, the stability of the Naira is crucial for economic growth, trade, and overall prosperity. But key policymakers and economic watchers have consistently maintained that the Naira has been consistently undervalued—an economic phenomenon indicating that the Naira’s foreign exchange is lower than it should be, based on economic dynamics.
“It is now considered amongst the worst-performing currencies among the world’s emerging market currencies, leading us to ask, is the naira on a free fall, or has it reached its point of inflection?”
Nigeria’s apex monetary authority manager, Dr Olayemi Cardoso, has consistently maintained that the Naira has been heavily undervalued over the past years. While various metrics suggest that the Naira may not reflect its “true” value, a closer examination reveals that the answer is far from straightforward, depending largely on the methodology and context used for evaluation. This naira undervaluation has been a pressing concern that warrants attention from policymakers and stakeholders.
The debate over whether the naira is truly undervalued hinges on multiple factors, including metrics like Purchasing Power Parity (PPP) and Real Effective Exchange Rate (REER), as well as Nigeria’s economic fundamentals. While PPP suggests the naira may be undervalued due to low domestic prices and a significant gap between official and parallel market rates, structural weaknesses such as overreliance on oil, high inflation, and forex shortages complicate the picture. These issues point more to misalignment than intrinsic undervaluation. Restoring the naira’s value requires addressing systemic economic challenges, adopting a unified exchange rate system, and building investor confidence to align the currency with its true economic potential.
What is the optimal value of the Naira?
Determining the fair value of the naira requires addressing a complex interplay of economic fundamentals, market dynamics, and structural challenges. Metrics like Purchasing Power Parity (PPP) and the Real Effective Exchange Rate (REER) often indicate that the naira might be undervalued due to lower domestic prices relative to global standards. However, this apparent undervaluation is overshadowed by systemic weaknesses, including overreliance on oil exports, high inflation, and inefficiencies in the forex market. The persistent disparity between official and parallel market rates reflects misalignment rather than true undervaluation, underscoring the need for comprehensive reforms to align the naira’s value with Nigeria’s economic realities.
A closer look at the above highlights the recent trajectory of the naira’s misalignment from its fair value. Between June 2024 and October 2024, the misalignment narrowed significantly, moving closer to equilibrium. By October 2024, the naira demonstrated a slight overvaluation of 1.8 percent, indicating minimal deviation from its expected value. This period of stabilisation reflects the effectiveness of targeted interventions by the Central Bank of Nigeria (CBN), such as adjustments to monetary policy rates, enhanced foreign exchange market reforms, and increased inflows from remittances, dollar bonds, and foreign direct investment. These measures collectively improved the naira’s alignment with its fair value.
“ Restoring the naira’s value requires addressing systemic economic challenges, adopting a unified exchange rate system, and building investor confidence to align the currency with its true economic potential.”
Achieving a fair value for the naira hinges on unifying exchange rates, boosting forex reserves through export diversification, and reducing reliance on imports. Structural reforms in key sectors like agriculture, manufacturing, and infrastructure are critical to enhancing productivity and economic resilience. Simultaneously, effective inflation control and a transparent, market-driven exchange rate system are vital to restoring stability and confidence in the naira. By addressing these foundational issues, Nigeria can position the naira as a reflection of a stronger, more sustainable economy.
Read also: Why the Naira may be stronger than it seems
Restoring the true value of the Naira
This battle for the soul of the naira is more than a fight to stabilise exchange rates; it is a call to action to restore confidence in Nigeria’s economy. It is about forging bold policies, fostering innovation, and building a resilient financial system that aligns with the people’s aspirations. Restoring the true value of the naira requires addressing Nigeria’s systemic structural economic weaknesses and making a bold attempt to return to a unified, market-driven exchange rate system. Other tactics, such as restoring investor confidence, enhancing productivity, and reducing import dependency, are critical for aligning the naira’s value to its true economic potential. Until these are affected, the angst over whether the naira is undervalued will remain a symptom of broader economic challenges.
In this critical moment, the naira’s journey must be a reflection of Nigeria’s resolve to overcome adversity and reclaim its rightful place on the global stage.
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