Innovictor
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It is no longer news that the Naira is recording sharp declines in its value as the Nigerian economy continues to be impacted by falling oil prices. The situation comes with an added twist as the value of the Dollar continues to rise; hence, any Dollar-Naira trade is at a major disadvantage of double losses because the value of the foreign currency is rising while the value of the home currency is falling.
How Does the Falling Naira Affect You?
To the average Nigerian, the fall in the value of the Naira does not affect the price of toothpaste; hence, there's no reason to be concerned that the Naira is losing its value. However, if you plan to pay tuition in foreign schools, buy books from abroad, register for a foreign exam, buy electronics, or cars, you can be sure that the drop in the value of the Naira really concerns you. In essence, if you'll need to purchase any item that is not locally produced at any time this year, you should be prepared to pay more in 2015.
We are yet to digest the decision of the Central Bank of Nigeria to devalue the Naira by 8.3% from an exchange rate of N155 to a new official rate of N168. However, it seems that the Naira is in a freefall as the currency continues to record sharp declines in its value.
For much of last week, the interbank market exchange rate for the dollar-Naira trade was N190.18. However, the interbank exchange rate this week stands somewhere around N192 to one dollar. At the parallel market (Black Market), the exchange rate stood somewhere around N204 in sharp contrast to the official exchange rate.
Hence, a 60-inch LCD television set that costs $1000 would cost you N155,000 at the prevailing exchange rate before the devaluation of the Naira. After the devaluation, the same television set will cost you N168,000. Going by the interbank exchange rate, that television set will set you back 192,000 this week. However, if you had to buy your dollars at the parallel market, that same television will cost you 204,000 .
In essence, a television set that costs N155,000 about six months ago will now cost N204,000, to mark a 31.61% increase in six months. I seriously doubt if your earnings has increased by 31.61% in the last six months. Hence, if you insist on buying that television set now, you'll basically be paying that extra 31.61% from the funds that you could have allocated to meeting other needs.
How to Avoid Overpaying for the Dollar
You need to understand that the Naira cannot fall indefinitely and the Dollar cannot rise infinitely. Hence, the market forces would eventually cause the depreciation of the Naira against the Dollar to bottom out.
The only way to avoid overpaying for the Dollar is to delay the purchase of goods or services that must be paid for in dollars. I would suggest that you allow the volatility in the Forex markets ease out before you start exposing your finances to Dollar expenses. Hopefully, the volatility will end after the February elections and we look forward to new fiscal realities at the $1 equals N200.
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