In a recent statement, the Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, declared, “Our currency (Naira) is now more competitive.” This bold assertion has sparked widespread discussion among economists, investors, and everyday Nigerians, raising questions about what exactly makes the Naira more competitive and what this means for Nigeria’s economic future. In this blog post, we’ll unpack Cardoso’s statement, explore the factors driving the Naira’s improved standing, analyze the CBN’s recent policies, and discuss the broader implications for Nigeria’s economy. Buckle up for a detailed journey into the heart of Nigeria’s monetary landscape!
Understanding Currency Competitiveness
Before diving into the specifics of Cardoso’s claim, let’s clarify what it means for a currency to be “competitive.” In economic terms, a competitive currency is one that supports a nation’s economic objectives, particularly in international trade and investment. A competitive currency typically:
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Holds a Stable or Favorable Exchange Rate: A currency that maintains relative stability or appreciates against major global currencies (like the USD or Euro) is more attractive to investors and traders.
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Boosts Export Potential: A competitively valued currency makes a country’s goods and services cheaper on the global market, driving export growth.
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Attracts Foreign Investment: Stability and confidence in a currency encourage foreign direct investment (FDI) and portfolio inflows.
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Reflects Sound Monetary Policy: A competitive currency often signals effective central bank policies, including inflation control and foreign exchange management.
When Governor Cardoso claims the Naira is now more competitive, he’s likely pointing to improvements in one or more of these areas. To understand his optimism, we need to examine the context of Nigeria’s recent economic policies and the Naira’s performance in 2024 and early 2025.
The Naira’s Journey: A Historical Perspective
The Naira has faced significant challenges over the past decade, grappling with depreciation, volatility, and structural economic issues. Nigeria’s heavy reliance on oil exports, coupled with fluctuating global oil prices, has historically exposed the Naira to external shocks. For instance, in 2020, the COVID-19 pandemic and falling oil prices led to a sharp devaluation, with the Naira dropping to over ₦500 per USD in the parallel market.
By 2023, the Naira faced further pressure due to foreign exchange (FX) shortages, speculative trading, and a persistent gap between the official and parallel market exchange rates. At one point, the parallel market rate soared past ₦1,900 per USD, while the official rate lagged significantly, creating arbitrage opportunities and eroding confidence in the currency.
However, since the appointment of Olayemi Cardoso as CBN Governor in September 2023, the central bank has pursued aggressive reforms to stabilize the Naira and restore its competitiveness. These efforts appear to be bearing fruit, as evidenced by Cardoso’s recent statement. Let’s break down the key policies and developments that have contributed to this shift.
Central Bank Reforms Driving Naira Competitiveness
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Exchange Rate Unification
One of the CBN’s most significant moves under Cardoso was the unification of Nigeria’s multiple exchange rate windows. Prior to 2023, Nigeria operated a complex system with different rates for official, investor, and parallel markets. This led to distortions, round-tripping, and a lack of transparency in FX transactions. In June 2023, the CBN announced the unification of these rates, adopting a willing buyer-willing seller model under the Investors and Exporters (I&E) window.This reform aimed to align the official rate closer to the parallel market rate, reducing arbitrage opportunities and restoring market confidence. By late 2024, the official exchange rate stabilized around ₦1,600-₦1,700 per USD, a significant improvement from earlier volatility. While the parallel market still shows occasional premiums, the gap has narrowed, signaling greater market efficiency. -
Clearing FX Backlogs
A major factor undermining the Naira’s value was the backlog of unmet foreign exchange demands, particularly for importers and foreign investors seeking to repatriate funds. By early 2024, this backlog was estimated at over $7 billion. The CBN, under Cardoso’s leadership, prioritized clearing these obligations, injecting liquidity into the FX market and boosting confidence among investors.For example, in early 2024, the CBN settled significant portions of verified FX obligations to airlines, manufacturers, and other sectors. This move not only eased pressure on the Naira but also signaled Nigeria’s commitment to honoring its financial commitments, making the currency more attractive to global stakeholders. -
Monetary Policy Tightening
To combat inflation, which hit a 28-year high of 33.88% in October 2024, the CBN implemented a series of interest rate hikes. The Monetary Policy Rate (MPR) was raised multiple times, reaching 26.75% by mid-2024. Higher interest rates attract foreign capital inflows, as investors seek better returns on Naira-denominated assets like treasury bills and bonds. These inflows increase demand for the Naira, supporting its value.Additionally, tighter monetary policy helps curb inflation, which erodes a currency’s purchasing power. By addressing inflation, the CBN has indirectly bolstered the Naira’s competitiveness by making it a more reliable store of value. -
Foreign Reserve Management
Nigeria’s foreign reserves, which stood at approximately $36 billion in late 2024, play a critical role in defending the Naira. The CBN has leveraged these reserves to intervene in the FX market, ensuring adequate dollar supply during periods of high demand. Improved reserve levels, driven by rising oil prices and non-oil export growth, have provided a buffer against external shocks, further supporting the Naira’s stability. -
Encouraging Non-Oil Exports
A competitive currency often goes hand-in-hand with a diversified economy. The CBN has promoted non-oil exports, such as agriculture and manufacturing, to reduce Nigeria’s dependence on volatile oil revenues. A weaker but stable Naira makes Nigerian goods more affordable abroad, boosting export competitiveness. For instance, products like cocoa, sesame seeds, and processed foods have seen increased demand in international markets, contributing to FX inflows and supporting the Naira.
Cardoso’s claim is backed by several measurable indicators from late 2024 and early 2025:
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Exchange Rate Stability: While the Naira has not returned to its pre-2020 levels, the official rate has shown relative stability, fluctuating between ₦1,600 and ₦1,700 per USD in the I&E window. This is a marked improvement from the extreme volatility of 2022-2023.
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Narrowing Parallel Market Premium: The gap between the official and parallel market rates has decreased, reflecting greater market confidence and reduced speculative trading.
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Increased Investor Confidence: Foreign portfolio investment inflows rose in Q3 2024, with Nigeria’s bond market attracting significant interest due to high yields. This suggests growing trust in the Naira’s stability.
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Export Growth: Non-oil exports grew by 6.3% in 2024, according to the Nigerian Export Promotion Council, partly due to a more competitive Naira making Nigerian goods cheaper abroad.
The Naira’s improved competitiveness has far-reaching implications for Nigeria’s economy and its citizens:
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Boost to Exports: A competitive Naira makes Nigerian goods and services more affordable in global markets, potentially increasing export revenues and creating jobs in sectors like agriculture, manufacturing, and technology.
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Attracting Investment: A stable currency encourages foreign direct investment and portfolio inflows, which can fund infrastructure, technology, and industrial projects.
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Lower Import Costs: While a stronger Naira may make imports cheaper, Nigeria’s import-dependent economy still faces challenges. A balanced approach is needed to ensure local industries are not undermined.
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Inflation Control: A stable or appreciating Naira can help reduce imported inflation, as the cost of imported goods (like fuel and raw materials) decreases. This could ease the cost-of-living pressures faced by Nigerians.
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Public Sentiment: On platforms like X, Nigerians have expressed mixed feelings. Some praise the CBN’s reforms, while others argue that the Naira’s gains have not yet translated to tangible improvements in living standards. For instance, posts on X highlight ongoing concerns about inflation and unemployment, even as the currency stabilizes.
Challenges and Risks Ahead
Despite the progress, the Naira’s competitiveness is not guaranteed. Several risks remain:
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Oil Price Volatility: Nigeria’s economy remains heavily oil-dependent. A sharp decline in global oil prices could strain reserves and weaken the Naira.
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Inflation Pressures: While monetary tightening has helped, inflation remains high, eroding purchasing power and potentially offsetting the Naira’s gains.
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Parallel Market Dynamics: The persistent premium in the parallel market suggests that full confidence in the Naira has not been restored. Addressing illegal FX trading and improving transparency will be critical.
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Global Economic Conditions: Rising global interest rates or a stronger US dollar could exert renewed pressure on the Naira, as seen in previous cycles.
Governor Olayemi Cardoso’s assertion that the Naira is now more competitive reflects a combination of deliberate policy reforms and improving economic indicators. The CBN’s efforts to unify exchange rates, clear FX backlogs, tighten monetary policy, and promote non-oil exports have laid a foundation for a stronger, more stable currency. While challenges remain, the Naira’s improved standing signals a potential turning point for Nigeria’s economy.
For everyday Nigerians, the key question is whether these gains will translate into tangible benefits, such as lower prices, better jobs, and improved living standards. For investors and policymakers, the focus will be on sustaining these reforms and building resilience against external shocks. As Nigeria navigates this complex economic landscape, the Naira’s journey will remain a critical barometer of the nation’s progress.
What are your thoughts on the Naira’s competitiveness? Have you noticed any changes in prices or economic conditions in your community? Share your insights in the comments below, and let’s keep the conversation going!
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