President Bola Tinubu had ambitions of stabilising the free-falling naira when he came into power in May 2023. One of his first moves as president was giving the Central Bank of Nigeria more autonomy to determine the exchange rate, ending years of strict currency controls. This was hailed as a move towards a more market-determined exchange rate for the naira. However, seven months on from this “float” experiment, the naira has crashed through several barriers, reaching an all-time low of N1,000 to $1 according to parallel market data. This article examines the aftermath of this failed experiment and its implications for the Nigerian economy.
When Tinubu took over the reins of power and implemented the float, the naira exchanged around N650 to $1. This was already a 15% depreciation from the N567 rate when his predecessor Muhammadu Buhari left office. However, the Tinubu administration was confident this move would stabilise the currency by allowing market forces to determine its value. For a while, the official CBN rate remained relatively stable at around N768. But signs of instability began to show in the parallel market, where most forex transactions occur in Nigeria.
By late August, the parallel rate surged above N800. It continued gaining ground before making history by breaching N1,000 to $1 in late September. This sent shockwaves through Africa’s biggest economy and showed the float experiment had dramatic unintended consequences. Currency speculators likely took advantage of the autonomy given to CBN to devalue the currency at will. Lack of adequate dollar liquidity in the foreign exchange market was also a major factor. Crude oil production and sales, Nigeria’s main forex earner, has been declining in recent years.
While the CBN had promised more transparency, its failure to defend the currency in the parallel sector has eroded confidence in monetary policy. With dollar scarcity worsening import dependence, inflation which was already in the high 30% range pre-Tinubu, has surged further. Food prices have soared putting immense pressure on low-income households. Manufacturers are paying more for raw material and equipment imports, adding costs that will get passed to consumers. Foreign investors are reluctant to commit funds in such a highly volatile currency. Experts warn persistent macroeconomic imbalances make the float unsustainable without strategic reforms.
Another concern is the political fallout of such a weak naira. Previous presidents faced significant backlash and allegations of policy mismanagement or corruption during past currency crises. Though Tinubu’s handlers claim global factors are mostly to blame this time, opposition voices are bound to exploit the issue. Many view his relaxed stance towards CBN as a major reason for the worsening situation. But the policy options available now are few and risky. Imposing harsh foreign exchange controls like under Buhari will scare off portfolio investors. But keeping the status quo also doesn’t inspire confidence.
Overall, the failed float has left the economy in a precarious position. A weaker naira raises Nigeria’s sovereign debt servicing costs substantially. It complicates monetary policymaking for the CBN. And high inflation triggers social unrest if not contained. With general elections due in early 2027, fixing the exchange rate mess is now an urgent priority to improve living standards and guarantee the ruling party’s electoral fortunes. But after multiple currency crises, problems with dollar scarcity, sustained fuel and electricity subsidies, and mounting debt, it remains unclear if this administration has the political will and technical ability needed to navigate these choppy economic waters successfully. Only significant economic reforms can change this gloomy outlook.
In summary, Tinubu's hopes of ending years of currency manipulations through a free float have backfired quite dramatically. The naira crossing N1,000 to $1 so soon after reflects deep imbalances and a lack of preparation for such a move. The damage inflicted on households and businesses demands urgent action to rescue the situation. Half measures will not restore stability. Tinubu must show strong leadership to devise a coherent strategy addressing structural issues, convince global creditors and re-earn citizen confidence. Else, further decline awaits Africa’s biggest economy in the turbulent period ahead.