If you exchanged your Naira for USD in 2015 and held it until September 2025, that $1, when converted back to Naira, would be worth about 644.14% more.
However, the exchange value of the Naira has depreciated over the years as inflation has eroded its ability to serve as a reliable store of value.
If you exchanged your Naira for USD in September 2024 and held it, the $1, when converted back to Naira, would be worth 11.12% less; The Naira has strengthened.
So, the question naturally is Why has the Naira gained strength? And what can sustain its strength?
First, an introduction to currencies
A currency note represents a legal means to trade in goods and services. If I want to buy a luxury flat in Nairobi, I need Kenyan shillings or US Dollars. I can pay with US dollars because the US is the global settlement currency. Similarly, if Kenyans want Nollywood movies, they will need Naira or US dollars.
Thus, if I am in Nigeria and buy Kenyan goods, the value of the Kenyan shilling will rise, and the value of the Naira will fall.
In 2023, the Central Bank of Nigeria’s Governor, Yemi Cardoso, during a presentation to the House of Representatives, disclosed that oil revenues had declined from $ 93.89 billion in 2011 to $31.4 billion in 2020.
Meanwhile, foreign education expenses between 2010 and 2020 grew to $28.6 billion, and foreign healthcare expenses rose to $11.01 billion during the same period.
The naira thus lost value because of the simultaneous decrease in the supply of dollars from crude oil sales and the increase in demand for dollars. The CBN Governor listed the following as key demand drivers for foreign currency in Nigeria
So, what has changed?
Has education and medical spending in USD reduced? Are food imports down?
For education and medical tourism, using the latest CBN Economic Report dated Q1 2025, the CBN says
“The current and capital account recorded a lower surplus, driven by widened deficits in the services and primary income accounts, coupled with a decline in remittances inflow”.
To translate, Nigeria is still importing invisible goods such as education and medical tourism, and fewer remittances are coming in.
According to the Nigerian Bureau of Statistics’ report for Q2 2025, Food imports increased by 32.60%.
Thus, to summarise, demand for foreign exchange to import food, fund medical tourism, and support foreign educational spending has shown no material decrease, using the latest reports, of course.
Thus, to summarise, demand for foreign exchange to import food, fund medical tourism, and support foreign educational spending has shown no material decrease, using the latest reports, of course.
The Answer is increased Foreign Portfolio Investment (FPI) and a fall in US interest rates.
The year 2025 has seen uncertainty in the global economy, driven by the America First policies of the Trump administration and record fiscal deficits in the United States.
This uncertainty had led to a sell-off of USD dollar assets. If we track the dollar’s performance using the DXY index, which tracks the USD against major currencies, we see the USD down 10.75% YTD. The US Dollar is down against all major currencies, the Euro has gained 12%, and the GBP has gained 7%.
Asset manager seeking yield elsewhere.
In December 2024, the best-performing global asset class was US Equities, which returned 28% when measured by the VTI equity ETF. Over the past five years, from 2019 to 2024, US equities returned 13.8%, compared to Emerging Market Bonds (EMLC), which returned -2.1% over the same period.
As of June 30, 2025, we see a reversal: the best-performing global asset class is now foreign stocks and bonds. The Emerging market bonds (EMLC) are now up 12.5% while US stocks (VTI) post 5.6% and US bonds (BND) post 4%.
The Demand for Foreign bonds has seen FPI pour into Nigeria. In the latest CBN monthly economic report dated May 2025, Capital inflow increased to US$1.70 billion, from US$0.79 billion in the preceding month, with portfolio investment rising to US$1.35 billion, from US$0.72 billion.
The demand for foreign bonds has led to portfolio managers selling FX to the Central Bank of Nigeria to buy Naira, which they then use to purchase Naira instruments.
The recent strength of the Naira is the inflow of $ from FPI. Whilst Nigeria is posting a positive trade number, meaning exports are more than imports, it is also posting record $ debt and debt servicing numbers. In Q1 2025 alone, Nigeria paid $1.39 billion to service its external loans.
Crude oil production has remained stable, but it is still far below the budgeted numbers for 2025, and demand for USD to fund education, health, and food imports has not abated.
The fall in the US Fed rates has also contributed to a rise in the exchange value of the naira. As long as the US FED continues to reduce rates, the flow of FPI to Nigeria will grow, all things remaining constant
In closing, the question really is what happens when the CBN decides to reduce its rates as well. Will FPI flee? Then what happens to the Naira?