It is important to note that the demand and supply for foreign exchange determine the value of and or the strength of our currency. The CBN, which has the mandate of protecting the value of the naira against the dollar, does not produce dollar and or the foreign currencies but it earns that through the export of our products.
Unfortunately for Nigeria, about 90 per cent of our sources of foreign exchange is through the sales of crude oil which is a volatile commodity. It is equally sad to note that about 90 per cent of what we need for our daily survival is imported.
The naira lost a lot of value against the dollar from 2014 to date leading to rising inflation from nine per cent then to 15 per cent in 2022.
It is equally a fact that by 2016 a barrel of crude oil was sold at $27 which represented a loss of about $73 per barrel. The price of crude oil now hovers between $70 and $80 per barrel. However, one could say that the average crude oil price from 2014 to date is conservatively $60 a barrel which is still representing a fall of $40 per barrel in comparison to the average price of $100 per barrel from 2010 to 2014.
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The most unfortunate thing for us as a country is relying on crude oil by about 90 per cent as the source of foreign exchange despite its volatility. It is equally very painful to note that with the exception of about five to six states, all other states rely on federal allocation for about 80 per cent of their revenue.
In my view, the CBN must stop subsidizing the “rich” through allocation of scarce foreign currency to pay school fees of their children studying abroad and for the payment of medical bills.
Those who can afford foreign education and medical care for their children can go ahead, but Nigeria as a country should stop the allocation of foreign exchange for those who decide to train their children outside the country or go there for medical reasons.
In the short and medium term the managers of our economy must not only continue with the foreign exchange “demand” management approach, but must also diversify our sources of foreign exchange earnings in order to strengthen our local currency.
In the longer term, the managers of our economy must develop the productive capacity of the local economy to reduce the demand for foreign exchange which will definitely strengthen the local currency. Our hard earned foreign exchange must be conserved for raw materials importation and not the unfortunate finished products importation.
