By Ghazali Ibrahim
A United Kingdom-based international affairs policy think tank, Chatham House, has advised the Nigerian government against strengthening the naira, citing several benefits of a weaker currency.
In a recent report titled “Nigeria’s Economy Needs the Naira to Stay Competitive,” Chatham House argued that a weaker naira has improved Nigeria’s trade balance, increased capital inflow, and helped rebuild the Central Bank of Nigeria’s (CBN) foreign reserves.
According to the report, when the naira was artificially strong, imports surged, making the country financially vulnerable. However, with the recent devaluation, Nigeria has become more competitive than in the past 25 years.
The think tank warned that artificially boosting the naira’s value could encourage capital flight, negatively impact local industries, and eliminate economic gains from the depreciated currency.
“We advise the Nigerian government to resist the temptation to combat inflation by allowing the naira to appreciate against the dollar,” the report stated. “Instead, we recommend alternative measures to manage inflation, such as improving liquidity and enhancing government revenue generation.”
Despite this advice, the CBN has implemented strategies to stabilize the naira, including tightening regulations for Bureau de Change operators and introducing an Electronic Foreign Exchange Matching System.
However, challenges like high inflation, strong dollar demand, and dwindling foreign reserves continue to pressure the naira.
The Nigerian government has not yet responded to Chatham House’s advice, but the report is expected to spark a debate on the country’s economic policy.
