Reasserting the Naira: Reform or Risk?
President Bola Ahmed Tinubu’s push to reinforce the use of the naira in domestic transactions is being framed as a bold step toward restoring monetary sovereignty. At its core, the policy seeks to curb the growing practice of pricing goods, services, and contracts in foreign currencies — particularly the United States dollar — and to re-establish the naira as the unquestioned legal tender within Nigeria’s borders.
Yet beneath the surface lies a deeper economic question: can the law compel confidence?
Nigeria’s creeping “dollarisation” has long worried policymakers. In high-value real estate, school fees, luxury goods, and certain professional services, pricing in dollars became commonplace. For government, this signaled a loss of faith in the national currency and a weakening of monetary authority.
Mandating transactions in naira aims to:
Strengthen demand for the local currency; reduce speculative dollar hoarding; narrow the gap between official and parallel exchange rates; and
reinforce the Central Bank’s control over monetary policy.
On paper, the logic is straightforward. If every domestic transaction must be settled in naira, the currency’s relevance and demand should rise. But economics rarely bends purely to legal instruments.
Currencies derive value not only from decree but from trust.
Nigerians have endured significant exchange-rate volatility in recent years, alongside inflation that has eroded purchasing power. In such an environment, many citizens turned to the dollar not as a transactional tool, but as a hedge against uncertainty.
This is where the policy faces its most delicate test.
If citizens interpret the move as a sign of economic stabilization — accompanied by improved foreign exchange liquidity and inflation management — the naira could gradually regain strength.
However, if it is perceived as a restrictive measure introduced amid persistent volatility, it may trigger the opposite reaction: heightened private demand for dollars as a store of value.
History suggests that when access to foreign exchange is constrained without a corresponding increase in supply, parallel markets often expand rather than contract.
The parallel market thrives on two factors: scarcity and mistrust.
If the official foreign exchange window becomes more transparent and liquid, black-market activity could shrink. But if dollar demand remains unmet — particularly for imports, tuition payments abroad, medical expenses, and travel — the underground market may remain resilient. In that case, the premium between official and parallel rates could widen, undermining the policy’s intent.
Nigeria’s economy remains import-dependent. Many essential goods — from machinery to pharmaceuticals — require foreign exchange. If businesses face difficulty accessing dollars while costs remain externally determined, price pressures could intensify. Inflation, already a central concern, could respond unfavourably unless broader structural reforms accompany the currency directive.
The real strength of a currency rests on fundamentals: sustainable foreign exchange inflows, diversified exports, fiscal discipline, credible monetary policy, investor confidence. Mandating naira transactions addresses the surface manifestation of dollar preference. It does not, by itself, cure the underlying drivers.
The policy is neither inherently misguided nor automatically transformative. It is a tool — one whose success depends on context. If backed by improved oil revenues, rising non-oil exports, disciplined fiscal management, and steady inflation control, the move could reinforce the naira’s standing and restore confidence over time.
If implemented without strengthening these fundamentals, it risks intensifying private dollar hoarding and sustaining parallel market pressures. The choice, ultimately, is not between naira and dollar. It is between confidence and compulsion. And confidence, in the long run, remains the more powerful currency.
