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Real Reason Naira Fell to dollar revealed

by NaijNaira
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Reason Naira Fell to dollar

The US economy fell into a technical recession in the second quarter, with data published by the commerce department on Thursday showing a contraction in the second three months of the year, Financial Times reports.

According to the Wall Street Journal, a stronger US dollar draws investors away from emerging markets, and governments that issue debt in foreign currencies face greater risks.

The naira has been on a free fall in recent weeks, depreciating to N430 per dollar at the official market, known as the Investors and Exporters forex window, and N710/$ at the parallel market popularly called the black market.

StatiSense, a data consulting firm, states that in 1981, N1 million was $1,570,105, showing that the naira was stronger than the dollar.

But 10 years after, precisely in 1991, the hand of the clock was turned as N1 million was $102,517. Twenty years later, in 2001, N1 million was $8,814. In 2011, N1 million was $6,382 and 40 years after, precisely in 2021, N1 million became weaker and stood at $2,421.

This, according to him, makes investment in US government treasury instruments more attractive to investors who then pull out their funds from other markets, especially those considered risky and invest them in the US.

Commenting on the implications of a stronger US dollar for the naira, Uche Uwaleke, a professor of Capital Market at the Nasarawa State University Keffi, said, “It means higher exchange rate for the naira, imported inflation and higher cost of servicing external debt.”

Gafar Bashiru, a senior associate at Parthian Partners, said a stronger dollar would lead to a weaker naira in terms of import cost, capital outflow and speculation.

“As an import-dependent nation, we will have to spend more naira to buy the same volume of imported goods, thus worsening the naira-dollar exchange rate, ” he said.

This article was updated 1 month ago


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