The promise and pain of a floating naira

Nigeria’s long dance with devaluation ends in reform-driven float

Summary – After decades of dancing around currency reform, Nigeria is finally letting the naira swim in open waters. In one of the boldest policy shifts since 1986, the country has yet again abandoned the costly illusion of control that enriched a few and punished many.

This report explores why, despite the pain, it may be Nigeria’s best shot at restoring credibility, unlocking capital, and breaking a decades-long cycle of devaluations.

Nigeria is now operating under one of the longest stretches of a floating exchange rate regime in its history, marking a rare but decisive break from decades of currency mismanagement.

It’s been nearly two years since the central bank, under new leadership, dismantled the country’s long-standing capital controls in mid-2023. The move ushered in the most comprehensive and market-determined foreign exchange system since the country first attempted a float in 1986, during the Structural Adjustment Programme (SAP).

Since that first float, Nigeria has struggled to maintain a true market-driven regime.

The longest sustained float prior to now lasted from 1992 to early 1995, before the government reimposed controls. In 2016, a brief attempt to float the naira lasted less than six months before the CBN Governor Godwin Emefiele reverted to multiple exchange windows and heavy intervention.

This time, however, the float has held, despite intense inflationary pressure and political cost, raising hopes that Nigeria may finally be turning the page on its decades-long habit of exchange rate suppression, which has often ended in big devaluations.

The naira float paved the way for a never-before-seen drop in the value of the currency within months, a painful slide that economists and investors said was the price of credibility.

At N460 to the dollar in the official market and nearly N750 in street trading, something had to give. And when it did, the currency plummeted, bottoming near N1,900 to the dollar before stabilising– painfully– at around N1,600. Today the gap between official and street trading is near zero.

For Nigerians, the impact of the sharp fall in the value of the naira against the dollar was immediate. Grocery bills tripled for the average Nigerian, while school fees for wards abroad and health bills jumped for the rich.

For long-wary investors, however, the shock therapy signalled something different: Nigeria was finally letting go. In hindsight, it appears to be a turning point.

“The pain of floating the naira was real,” said Dolapo Johnson, a Lagos-based small business owner who imports spare parts from China. “But at least now, the stability and availability of the dollar means I can plan.”

Johnson’s relief is echoed by many small business owners across Nigeria. But the scarcity of dollars in Africa’s largest economy before the currency reforms spared no one– not even the most connected industrialists.

For Abdulsamad Rabiu, Nigeria’s third-richest man with a net worth of $5.1 billion, access to foreign exchange once meant grinding bureaucracy and a 12-hour interstate commute to the headquarters of the apex bank. “Every two weeks, we used to make the 12-hour drive to Abuja to seek dollar allocations for imports – camping out at the central bank for three or four days,” Rabiu wrote in a recent op-ed for the U.K. Telegraph.

That ordeal, he said, is now history.

“Now, I no longer need to go. I’ve met the new governor only once in two years – because I haven’t had to,” Rabiu said. “Monetary orthodoxy has finally arrived, bringing with it the liquidity that both domestic and foreign businesses depend on to smooth trade and de-risk investment.”

For years, FX was rationed through a maze of official windows that fostered arbitrage, left genuine business needs unmet, and ultimately hollowed out investor confidence.

Now, with the naira floating more freely, the policy reset is bringing breathing room from the factory floor to the corporate boardroom.

The scenario in Nigeria has played out many times in other countries: Egypt in 2016, Kazakhstan in 2015, Russia in 2014, and even Brazil in 1999. Governments hold the peg too long, deplete reserves, then rip off the bandage– hoping the markets reward pain with portfolio flows.

Nigeria followed the script. After nearly a decade of layered windows, hidden subsidies, and widening spreads between official and street rates, the CBN unified the FX market and returned to monetary policy orthodoxy.

Trail of forced devaluations

Since 2000, Nigeria has devalued its currency officially at least five times. Each one was with a mix of global pressure, oil price shocks, and self-inflicted policy delays.

Each devaluation came amid reluctance, driven by a fear of inflation, social unrest, and political backlash. But each delay made the eventual correction more painful.

Unlike Saudi Arabia or the UAE, whose hard pegs are backed by deep pockets and export surpluses– Nigeria has always walked a fiscal tightrope.

“Devaluations are the end result of unrealistic currency pegs, and Nigerians have had to suffer needless cycles of devaluations due to currency mismanagement,” a fund manager based in South Africa said.

The floating effect

Nigeria is not alone in its pivot to a floating FX regime. Countries like Egypt, Kazakhstan, and Argentina have taken similar paths, often reluctantly, with varying results.

The Egyptian pound was pegged to the USD (with frequent re-pegs) until November 2016, when the central bank floated it as part of an International Monetary Fund (IMF) condition.

The pound immediately devalued 32 percent (from 8.8 Egyptian pound to 13/USD) and soon traded 50 percent weaker. Inflation spiked to 23 percent by end-2016 and real wages fell, but the move unlocked investment and FX inflows.

In the subsequent years, GDP growth recovered to between 5 percent–6 percent, foreign reserves rose to nearly $40 billion by 2022, and FDI/tourism inflows increased.

Egypt’s float brought short-term pain but helped restore reserves and growth as analysts predicted.

Kazakhstan: For years the tenge was tightly managed. After a 19 percent devaluation in Feb 2014, Kazakhstan moved in Feb 2015 to a free float (abandoning a ±5 percent trading band) to cope with collapsing oil and Russia’s ruble. The tenge plunged from 185/USD to 250/USD by mid-2015. This triggered inflation which more than doubled from 6 percent to 14 percent in 2015 and a growth slowdown from 4.3 percent in 2014 to 1 percent by 2016.

In the next few years, inflation gradually eased into single digits and growth partially recovered to 4 percent by 2017 as oil prices stabilised. However, FDI (especially into oil) suffered and banking sector strains emerged. Overall, the float restored FX market balance but at the cost of a sharp recession and a temporary inflation surge.

Argentina: Under the 1991 Convertibility Plan, the peso was fixed 1:1 to USD until 2002. That peg eliminated inflation for a decade, spurred foreign investment and growth in the 1990s, but also led to chronic fiscal deficits and a loss of competitiveness. When the government finally abandoned the peg in 2002, the peso plummeted between 30 percent–40 percent in early 2002 and inflation shot to 20 percent monthly by mid-2002. The ensuing crisis was severe– GDP growth decline, debt default, but once the float was accepted, growth eventually rebounded, averaging 9 percent in 2003–2007 as exports recovered and reserves rebuilt. Inflation remained high at 20 percent–40 percent annually but Argentina regained current-account balance.

More recently, authorities have cycled between fixed and floating stances, each shift bringing surges in inflation and volatility but occasional capital inflows.

For countries that have traveled down this path, the pattern is clear: floating hurts. But for reform-minded governments, it also builds credibility, provided other pillars, like fiscal discipline and central bank independence, follow.

A boon for some, burden for others

The depreciation of the naira has led to the improvement in Nigeria’s balance of payments. The current account, which is the broadest measure of a country’s trade balance, has been in surplus for six straight quarters.

“Capital, albeit mostly in speculative form for the time being, is re-entering the country,” David Lubin, a policy analyst, said.

The inflow of capital has helped the CBN boost its foreign exchange reserves, with net reserves jumping to $23.11 billion at the end of 2024.

“Having an adequate stock of reserves is the sine qua non for financial stability in developing countries. So the progress the CBN has made is to be congratulated. Gross reserves are at a prudent level now, more or less equal to Nigeria’s stock of external debt, but they could usefully go to higher than this,” Lubin wrote in a piece for Chatham House.

The naira’s adjustment has also unlocked over 50 percent more cash for the federal and state budgets. The World Bank argues that a misaligned exchange rate hit Nigeria’s budget harder in recent years than the cost of the government’s fuel subsidies.

Banks have also emerged as winners of the reform. Float-driven revaluation of FX positions boosted profits for most banks.

The equity market, too, turned a corner. The NGX All-Share Index surged 40% in six months post-float, as foreign investors re-entered with cautious optimism.

For the average Nigerian, there’s little joy in macro gains. Inflation remains stubbornly high, and food insecurity has deepened. For them, the float is not a policy, it’s a life adjustment.

The steep depreciation of the naira also took a toll across Nigeria’s corporate sector, from manufacturers to telecom giants. Seven of the country’s largest listed firms booked a combined foreign exchange loss of N1.69 trillion in 2023, a figure that swelled to N1.88 trillion in 2024, according to data compiled by BusinessDay.

These seven firms include: MTN Nigeria, Dangote Cement, BUA Foods, Lafarge Africa, Nestle Nigeria, Nigerian Breweries and First Bank of Nigeria Holdings.

There has however been a reversal of those losses in the first quarter of 2025 with companies either returning to profitability or paring past losses. Nestle Nigeria, for instance, recorded profit after tax of N30.2 billion in Q1 2025, a remarkable turnaround from a net loss of N142.7 billion in Q1 2024.

Corporates are said to be looking to the derivatives market to manage FX risks in the future.

Light at the end of the tunnel

Experts argue that with sustained reforms, Nigeria could mirror Egypt’s partial success or even Kazakhstan’s export-led rebound.

“A unified exchange rate is the beginning of credibility,” said economist Wale Smith. “But without improved revenue mobilisation, fiscal coordination, and investment in export capacity, the naira will keep struggling.”

Nigeria’s decision to float its currency is neither heroic nor reckless, it is overdue. For years, the country had been subsidising an illusion. Now, the illusion is gone.

What remains is a hard currency, a hard road, and a real chance to build something lasting.

And for the first time in decades, the naira may finally be swimming with, rather than against, the global current.