Nigerians have been struggling for many months now due to the high inflation rate. Families are finding it hard to afford basic necessities. However, the Nigeria currency Naira, seems to be gaining strength against the dollar by the official and parallel market rates. Nonetheless, this article will expose how this sudden naira strength is a mere illusion created by the CBN through subsidies, and how these tactics by the central bank of Nigeria are making the inflation worse. The CBN policies to hide the true exchange rate while depleting the country's foreign reserve causes more harm than good, as Nigerians are struggling to survive the high cost of living.
How CBN Has Been Propping Up the Naira
In the latest report from the CBN, a total of $950 million was pulled from Nigeria’s external reserves spent in just 17 days. The Central Bank whipped up the money to shore up the price of the dollar through market intervention. Consequently, the apparent rise of the country’s pathetic currency against the greenback is entirely fake. Naira is still extremely low; it is only that the CBN is subsidizing the currency so that the true rate is not felt by anyone due to a few boulevards levying their currency.
With the dollar-price under CBN subsidy, ostensibly low, a semblance of Naira strength has been created in the market. Nonetheless, such a power has not reared its head in the informal market, and it is only expressed via rapid increase in the price of goods and services.
Rising Cost of Living
Even though the official exchange rate shows a stronger naira, the cost of basic goods is skyrocketing everywhere in Nigeria. Food items like rice, beans, yams, and other local root crops that the most of Nigeria families depend on are now even more expensive than before. According to the National Bureau of Statistics, the inflation rate hit 15.7% in February, the highest in five years.
While CBN claims high inflation is due to the high dollar prices in the past, we've seen the Central Bank has been keeping dollar rates lower than reality by using our reserves. So why are prices still rising so fast if dollars are cheaper? The truth is that subsidies have disconnected the exchange rate from realities on the ground. Regular Nigerians are suffering the most from this deception as we struggle to afford meals and other necessities.
Depleting Reserves
To sustain the naira at artificially strong levels against the dollar, CBN has been raiding our external reserves without concern for the future. Nearly $1 billion was withdrawn in less than three weeks just to subsidize forex and prop up the naira temporarily. But this strategy is unsustainable. Our reserves will not last long if almost $1 billion can disappear that quickly.
Once reserves are fully depleted, CBN will no longer be able to use them for subsidies. At that point, the naira will suffer a huge crash without the support it is getting now. All the while, problems like high inflation will have worsened due to the dislocation between official and market exchange rates.
Recommendation
For a lasting solution, I believe CBN needs to change course immediately. They must stop manipulating the naira and using our reserves to artificially lower dollar prices. It is time to let market forces determine the real exchange rate. Only by aligning with reality can we attract greater foreign investment inflows that create jobs. With more employment opportunities and a stable naira backed by solid reserves, inflationary pressures will start to abate. Most importantly, ordinary Nigerians will find some relief from high costs of living that have made survival a daily struggle for many families.
Conclusion
In summary, subsidizing dollars with our dwindling reserves is a failed strategy that has only delayed the inevitable while worsening current economic hardships. High inflation continues to negatively impact citizens despite the naira appearing strong on paper. For the sake of the people, CBN must free float the naira now and allow the market to discover its true price. Half-measures will no longer suffice - bold action is needed to stabilize the economy and relieve pressures on households.