Since taking office in September 2023, Central Bank of Nigeria (CBN) Governor Olayemi Cardoso has been on a mission—taming inflation, stabilizing the exchange rate, and restoring investor confidence. However, despite bold monetary policy moves, the naira continues to tumble, and inflation remains alarmingly high at 34.8%.
So, what’s going wrong?
The Black Market: A Silent Saboteur
Nigeria stands out as one of the few countries where the central bank itself has, for years, indirectly fed the black market with U.S. dollars. Currency traders thrive on speculation, creating artificial demand that further weakens the naira. Every time the government injects funds into the economy, fresh naira floods the system, quickly finding its way into FX speculation—triggering immediate depreciation.
The shocking reality? No strong economy in the world allows its currency to be traded at the scale Nigeria does in the black market. This uncontrolled parallel exchange system erodes investor confidence and fuels inflation.
Why Monetary Policy Alone Can’t Save the Naira
Despite raising interest rates to 27.5% and clearing billions in FX backlogs, Cardoso’s efforts are being undercut by deep-rooted structural issues. Without comprehensive reforms, the same cycle will continue.
Here’s what must change:
Criminalizing Black-Market Currency Trading
A strong, enforceable policy must be in place to eliminate illegal FX speculation and bring transparency to the market.CBN Must Stop FX Leakage
The central bank must ensure that dollar disbursements go directly to legitimate trade and businesses, rather than fueling the informal market.Curb Excessive Government Spending
Reducing excess liquidity in the economy will help stabilize the naira and curb inflationary pressures.Full Transparency in the FX Market
A structured, transparent foreign exchange market that prioritizes real demand over speculation will enhance investor confidence and economic stability.
The Path Forward
Nigeria is set to rebase its Consumer Price Index (CPI), which will offer a clearer picture of inflation trends. However, data alone won’t fix the economy. Without decisive action, businesses, investors, and ordinary Nigerians will continue to bear the brunt of naira instability.
Should Nigeria criminalize black-market currency trading, or is there another way out of this crisis? The fate of the naira hangs in the balance, and the next steps will define Nigeria’s economic future.
Insightful