A History Of The Naira- Save The Naira- A Must Read!!!

Since 1986, the Nigerian naira’s relationship with

the US dollar (and other foreign currencies) has

been erratic, (un)predictable, violent and full of

heartbreak and tears. The built-in dysfunction

has also made a lot of people very rich.

This piece seeks to trace the history of how

Nigeria’s foreign exchange management became

what it is to the point where the exchange rate

of the naira has become a deeply political

matter. The current debate continues to be

around whether or not Nigeria should devalue the naira.

Save The Naira

Save The Naira

But what if devaluation is the answer to a

non-existent question?

President Ibrahim Babaginda’s Second-Tier

Foreign Exchange Market (SFEM)

In September 1986, the SFEM was introduced as

part of a package of IMF reforms that general

Ibrahim Babangida (IBB) was forced to accept

given the mess that Nigeria had managed to find

itself. Before this, in the 70s to early 80s, the

naira exchanged for something like 90 kobo to

$1. By the time IBB left office in 1993, the naira

was exchanging for 17 naira to $1. It was during

this time that bureaux de change were

introduced into the economy.

The rate at which the naira depreciated in those

few years probably explains why Nigerians have

never gotten over the idea of a strong currency

as the mark of a ‘strong’ economy. People only

remember that things got worse as the naira lost

ground to the dollar. To make matters worse, the

industrialisation that a weaker exchange was

supposed to bring about never materialised.

Military Head of State Sani Abacha (1993-1998)

From the day that Abacha took power to the day

he died on June 8 1998, a period of some five

years, the ‘official’ exchange rate of the naira to

the dollar never changed from 22 naira to $1.

The Autonomous Foreign Exchange Market

(AFEM) was introduced in 1995 as a way for the

Central Bank of Nigeria (CBN) to sell forex to

end users at ‘market’ rates.

But it is one thing to declare that the naira is

worth 22 naira to $1. It is quite another thing to

be able to satisfy all the people who will demand

to buy dollars at that price. Given that oil prices

were below $20 a barrel in this period, there was

a very limited amount of dollars available

(whatever was left after those in charge had

helped themselves).

This rigid exchange rate gave birth to a

phenomenon that is now a permanent fixture

today — the mainstreaming of the forex

black market. At one point, the naira was trading

as high as 88 naira to $1 while the official rate

remained at 22 naira. Bankers came up with they

used to call the ‘blended’ rate. Say a client

requested $1 million from their bank, the bank

would inflate it to say $10 million and then take

the request to AFEM knowing that CBN would

never approve the full request anyway. Whatever

was obtained from CBN was then ‘blended’ with

the rest obtained from the black market.

It does not take a genius to know that if the

black market rate was four times the official

rate, people made an absolute fortune from the

arbitrage. A lot of banking fortunes that remain

to this day in Nigeria were made in this period. It

was sweet business.

Joseph Sanusi (CBN governor 1999 to 2004)

The Interbank Foreign Exchange Market (IFEM)

was introduced under Joseph Sanusi. Given how

Nigeria’s reserves had been depleted severely in

the two years before he took over, the naira was

never going to survive the ‘military fiction’ rate of

22 naira for very long. Within a year, the naira

was trading at 85 naira but this time, the gap

with the black market had closed considerably at

105 naira to the $1—particularly if compared to

what happened under Abacha.

In addition to low oil prices, Nigeria was also

struggling to service its $33 billion foreign debt

which was eating up valuable foreign exchange.

All the things we see today were also

experimented with under Sanusi. He suspended

the IFEM for six months when the naira came

under pressure and also introduced a limit to the

margin (above CBN’s rate) that banks could sell

their own forex for. Current governor Godwin

Emefiele is doing the same thing today.

Again, the attempt to ‘control’ the exchange rate

gave rise to all sorts of funny games. Since the

rate at which banks could sell their forex was

fixed, they simply complied with this rate at the

IFEM but then collected an extra payment

outside the system to make up the difference

with the ‘real rate’ at which they were actually

selling. Some bankers called this game ‘NIBSS

and Drafts’ i.e. you pay the official rate via

NIBSS (Nigeria Inter-bank Settlement System)

but settle the difference with a bank draft.

Forex round tripping games flourished. Nigeria

had all sorts of banks which totalled around 90

at one point.

The licences were cheap and you could make

the cost of the licence back in one year from

round tripping. It was a win-win business. Banks

also set up foreign entities which they used to

help their clients move money abroad. One bank,

now defunct, used to regularly reward employees

with a Volkswagen Jetta for outstanding

performance. In banking circles, the joke then

was that the Jetta was always won by the

bankers in the treasury department i.e. the best

round trippers in the bank.

Chukwuma Soludo (2004-2009) and The Oil


Starting in late 2003, oil prices began to rise

steadily from around $30 per barrel till they

peaked at $140 per barrel in the middle of 2008.

It was also during this period of rising oil prices

that Nigeria obtained its $18 billion debt relief

from the Paris Club. It was like being in heaven.

First of all, rising oil prices allowed Nigeria’s

foreign reserves to increase substantially. There

were reserves and there was also the Excess

Crude Account (ECA) which had more than $20

billion at one point in 2008.

What these happy events allowed governor

Soludo do was to harmonise the four different

exchange rates at the time. CBN, Interbank,

Bureau de Change and wire rates. He did this by

liberalising the foreign exchange manual and

including all sorts of things that were previously

not accepted as valid for foreign exchange

requests. For example, previously you could only

obtain foreign exchange to bring in ‘raw

materials’. But in the world we now live in,

manufacturing has changed to the point where

you might need to import some finished products

to add to your own process. His liberalisation

recognised this.

He also made things like medical bills and even

credit card bills allowable. And he achieved his

aim. In a short while, the different rates

converged to within one naira of each other

given that there was no need to go to the black

market or bureaux de change to get forex when

you could get it officially from your bank. Nigeria

was awash with dollars and bankers at the time

spoke of not even needing to go to CBN for

dollars for weeks. Indeed, they say CBN staff

used to harass them as to why they had not

come to buy dollars. This was the period when

the naira gained about 20% against the dollar

without anyone explicitly trying to ‘strengthen’ it.

Let us all come together as one Nigeria to save the naira. We are suffering from it, some people see this as an opportunity for them to make extra money in their various business.

Everything has gone up in the market today, even made in Nigeria’s goods. Let’s stop this now, because if we don’t our children children’s will be the ones to suffer. Let’s make a change now that we can. Let’s Save The Naira.


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