Still on the Falling Naira…
The Naira is still on a free fall and it seems like everything the CBN is doing to arrest the situation is only sending a panic signal to market participants. In fact the Naira exchanged at NGN 194 to a dollar, just last week, which is really baffling especially after the CBN devalued to NGN 168. The question is does the CBN know what it’s doing?
I would not particularly agree that the CBN is clueless. Like I mentioned in my last post, The Devalued Naira, the activities of the CBN are academic at best. Quoting myself, “…the actions of the CBN is an academic response to the situation on ground; they do not address the fundamental problems of the economy.”
A lot of individuals have pointed accusing fingers at the CBN governor, Godwin Emefiele, but the truth is that I don’t think he prayed for this neither did he bring this upon himself or Nigerians. He is not responsible for the global crash in crude oil prices neither is he responsible for the exodus of investors from the Nigerian capital markets, due to the fall in oil price, that sent the Naira south. However, he is responsible for making the right amends in this critical situation and ensuring a long term reversal of this trend.
The Nigerian economy is largely import dependent, stimulating export through devaluation as a means to stimulate the demand for the Naira will not be effective enough to reverse the trend. The economy is still strongly dependent on oil export and oil income still accounts for about 70% of government revenue. The CBN has made subsequent moves such as banning banks from holding dollar reserves and just this morning, the CBN made moves to disallow speculative pressure on the Naira (I think I heard someone screaming rational expectation theory). However, the most important question is how long will this fire brigade approach last?
By now, I believe someone is thinking what the lasting solution should be. And yes you got it! The economy needs to be diverse enough to make sure that panic in one sector will not be enough to cause panic in the whole economy. However, it must be said that the economy will not diversify itself over night but the journey of a thousand years, I believe, usually starts with a step…
PS; Watch out for my next post on the Pump price of Petrol…
BearandBullInsider 
True…we need to diversify our economy. the decision made by the CBN governor would have been the best if we had a wide range of product we export. It should be noted that fall in oil price and response by devaluing Naira merely offset each other e.g let say, before fall in oil price 2barrel is bought for N300(150 naira each ) but due to fall in oil price a barrel is sold for 100naira and let say the CBN devaluation increased the value of a barrel to 150naira in relation to the initial exchange currency . This action merely offset the initial fall in price but could also have devastating effect on other sectors of the economy as Nigeria been an import based economy(we will need more naira to import foreign product)
Actually, the purpose of the devaluation as a response to the fall in oil price is supposed to offset each other to create a zero net effect on the price of the Naira. However, this did not happen due to the reasons you have rightly mentioned.