As the Nigerian naira plunges, is it the next Zimbabwe dollar?

The Nigerian naira has been in a sharp decline, sparking wild comparisons with the devalued Zimbabwean dollar. Data by TradingView shows that the USD/NGN exchange rate has surged to 690, the highest level on record. It started the year at around 420. The Nigerian naira black market rate has soared to about 760.

Nigerian naira vs USD

Nigeria’s naira crash is gaining steam

The Nigerian naira has had a remarkable collapse in the past few years. For example, data shows that the currency was exchanging at 115 in 2008. This means that the peso has lost over 500% in this period, making it one of the worst-performing currencies in the world.

The collapse of the peso has had real impacts to most Nigerians. For one, it has wiped out most retirees and savers since their purchasing power has dropped. At the same time, it has eliminated the middle class in the country. 

For example, experienced Nigerian doctors make about N500,000 per month. At the official exchange rate, these doctors are earning an equivalent of $724. In 2020, when the USD/NGN was trading at 350, the same doctors were making $1,430. This explains why many Nigerian professionals are considering going abroad.

The collapse of the Nigerian naira has led some people to compare it to the Zimbabwe dollar, a currency that became worthless a few years ago. The two situations are not the same though. ZIM dollar plunged because of substantial currency printing while the Nigerian naira’s crash has other factors.

For example, the naira is plunging because of the lack of confidence about the economy. Also, the country imports substantially more than it exports. On trade, the country has always exported its crude oil and imported expensive petroleum products.

Nigeria inflation soaring

The most recent Nigeria naira news was the latest consumer inflation data. According to the statistics agency, the headline consumer inflation jumped to 22.41% in May. It rose by 0.9% on a MoM basis.

The situation will continue getting worse in the coming months after the new administration removed the fuel subsidy. With fuel prices rising, the cost of doing business will continue worsening, spurring more inflation.

The Nigerian naira will not end up like the worthless Zimbabwe dollar. However, it is hard to see how the currency will regain its momentum any time soon. For one, many Nigerians who have seen their naira values crash will likely move to foreign currencies like the US dollar or the pound.

I suspect that the Nigerian naira will continue falling in the next few months as inflation rises. If this happens, the next level to watch will be 750.