DEVALUATION OF NAIRA

Devaluation of naira means official lowering of the value of naira within a fixed exchange rate system, by which the apex monetary authority (Central Bank of Nigeria) formally sets a new fixed rate with respect to American dollars. In developed nations, when currencies are devalued, it encourages exports because the prices of local products serve as an incentive for foreign buyers, in the process they earn foreign exchange, increase production and create additional jobs. Unfortunately, the reverse is the case in Nigeria.
Devaluation is supposed to increase export and part of aggregate demand from foreign countries assuming demand is relatively elastic causing higher economic growth, consequently causing higher Real GDP. Also, with exports more viable and import more costly, we expect to see higher exports and lower imports which will reduce balance of payment deficit. Nigeria is supposed to earn more naira for her exports like oil which would give room for greater elasticity to finance capital expenses. The Nigerian economy might also appear more flexible after letting the naira fall and put up with the global market instability according to economic and policy experts. China for instance devalued her currency twice within two days by 1.9% and 1% against the US dollars in July 2015 which made exports less expensive and boosted overseas sales.
As at July 2016, Mrs. Kemi Adeosun Nigeria’s finance minister declared Nigeria in a technical state of recession (www.thecable.ng). In this case devaluing naira is not enough to boost export demand because we have little to export. Rationally, devaluing a country’s currency should depend on why the currency is being devalued. If it is as a result of loss in competiveness, then devaluation can help to restore competiveness and economic growth. However, if the devaluation is aimed at meeting a positive exchange rate target, it may be unsuitable for the economy. Now devaluing the naira automatically means that Nigerian importers would buy goods in Yuan for instance and sell in naira so they either get a smaller amount for their money or charge customers more. In turn, many Nigerians are finding it difficult to pay for services like education, health care, accessories etc in other countries due to the fall in the value of naira. Point is any country that has little or no products and services for exports should have no business devaluing her currency.
As a way of proffering solutions to the current currency fall in Nigeria, the Industrial Commercial Bank of China Ltd and the Central Bank of Nigeria have signed a bi-lateral trade agreement deal on Yuan transactions. This deal will not only provide a way for both countries to settle trade agreements in Yuan but also make Yuan flow freely in Nigerian banks and will be included in her foreign reserves. I suggest the Nigerian government should pursue import substitution strategy of industrialization as this will make goods and services that are imported from foreign countries to be manufactured locally and make the macroeconomic environment more conducive.
                                                                          saefhenryosas