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Currencies
NIGERIAN NAIRA
Introduction | Overview | Structure | History | Factors affecting change in exchange rates | Daily trend of Nigerian naira | Weekly trend of Nigerian naira
Introduction


Naira is a currency unit that is used by Nigeria as its official currency since 1973. "Kobo" subdivides the currency unit into 100 equal parts. Naira is depicted with the symbol "" but due to lack of accessibility of the symbol in most of the fonts, it is often denoted by a simple "N" instead. According to the ISO 4217 regulation, Nigerian naira is entitled with NGN as the currency code and 566 as the numeric code. Even in plural terms, the currency is known "naira" only.

Overview


Nigeria is a country characterized by rich oil reserves and other minerals on one hand and on the other hand it encounters challenges on the political, infrastructure and managerial front. Nigeria is the 12th largest producer of oil in the world and among the major exporters of oil, it stands 8th place. The economy is highly dependent on its oil sector that contributes 40% of the GDP and as high as 95% of the foreign exchange revenues. The political instability and corruption keep even its oil sector from performing 100% and result in a portion of its natural resources unused. To worsen the situation, Nigeria is supposed to be the most populated country in Africa and it is said that one in four Africans is Nigerian. Also, mismanagement on the macroeconomic front along with all the other leaves the economy struggling and poor. Nigeria is counted among the countries of the "Third World".

When the Nigerian naira was launched, it was pegged to a basket of currencies having currencies of its seven trading countries including US dollar, British pound, German mark, French franc, Japanese yen, Dutch guilder and Swiss franc. But from 1986, the currency removed the peg and was freely floated in the market and it still follows the flexible exchange rate regime. In context of import and export restrictions of currency in Nigeria, any foreign currency can be imported in the country without any limitations with a declaration needed on amounts equivalent or in excess of US$5000. Import and export of local currency is permitted only till 5000 naira.

Structure


Nigeria adopted a decimalized official currency in the form of naira in 1973, 12 years after the country gained independence. The subunit of the naira has been served by "kobo". The Central Bank of Nigeria that was established in 1959 and issued the national currency prior to naira, got the responsibility and authority to issue the new currency as well. The paper currency form dominates the Nigerian currency system as the banknotes are issued in 8 denominations as compared to the coinage that is issued just with 3 face values. When the Nigerian currency was launched in 1973, currency coins were minted in 8 denominations and currently it has reduced to denominations namely 50 kobo, 1 naira and 2 naira, other coins being withdrawn in 2007. The backside of all the coins have embossed image of the coat of arms of the Nigeria surrounded by the words "FEDERAL REPUBLIC OF NIGERIA" and year of minting at the bottom. The obverse side of the coins possesses symbolic images with their respective face values. The 50 kobo coin shows a symbol of maize, 1 naira coin depicts a portrait image of Sir Herbert Macaulay and the 2 naira coin has the embossed picture of National Assembly building in the capital city, Abuja. The naira coins are circular in shape whereas the 50 kobo coin is 12-sided polygon.

The naira banknotes are printed 8 denominations that are 5, 10, 20, 50, 100, 200, 500 and 1000 naira. Redesigned notes for face values ranging from 5 to 50 naira were issued recently in February 2007 as a part of economic reforms. Also, attempts to issue polymer notes have been started, the 20 naira being already issued in polymer. The obverse side of all the notes show portrait of images of people that are important in context of the history and culture of Nigeria except for the 50 naira note that shows picture of 4 common Nigerian people, 3 men and 1 woman. The backside of the currency notes possesses pictures that relate and depict the culture of Nigeria. The details about the images on the countryís currency notes are mentioned below

  • 5-naira note - It shows the portrait of Alhaji Sir Abubarkar Tafawa Balewa on the front side and the backside has a picture showing Nkpokiti drummers

  • 10-naira note - Picture of Dr. Alvan Ikoku on the obverse and an illustration of Fulani milk maids on the reverse side of the note
  • 20-naira note - The front side has the image of the national hero General Murtala Mohammed and reverse of the note shows a popular potter, Ladi Kwali
  • 50 naira note - It has a picture of four Nigerian people, 3 men and 1 woman on the obverse side and the backside possesses a picture showing local Nigerian fishermen
  • 100-naira note - The portrait of Chief Obafemi Awolowo is illustrated on the obverse side of the note and on the reverse side, Zuma rock, a major landmark in Niger state is shown
  • 200 naira note - On the front side of the note, portrait image of Alhaji Sir Ahmadu Bello is depicted and the backside possess a pyramid of agricultural commodity and livestock farming
  • 500-naira note - The obverse side possesses a picture of Dr. Nnamdi Azikiwe and an off-shore oil-rig is illustrated on the backside
  • 1000 naira note - Two portraits of Alhaji Aliyu Mai Bornu and Dr. Dr. Clement Isong on the front and the image of CBN's corporate Head Office in Abuja on the reverse side of the note
History


The early history of western Africa suggests that the area now known as Nigeria was divided into three states namely Yoruba kingdom, Igbo kingdom and Edo kingdom ruled over by ethnic groups. During that time, barter system prevailed as a medium of exchange. With time, ring shaped Okpoho manilla, usually made from bronze or copper, came into existence and started to be used as barter coinage. Manilla coins got popular and its use spread all over western African region. Along with manilas, cowrie shells were also exchanged as medium of exchange. When the new world was found, Portuguese started the slave trade in which they shipped slaves from central and western Africa to the new world. These coins also played an important part in the Atlantic slave trade as these coins were used to acquire and exchange slaves and that is why, manilla coins came to be known as "slave trade money".

In the late 1800s, a British mercantile company, Royal Niger Company, was chartered for revival of Nigerian government, as a result of expansion of trade between Britain and Nigeria. The official currency of Britain that was British pound sterling started to be used in Nigeria along with Spanish dollars and French francs with an exchange rate of 1 British pound = 4 Spanish dollars. In 1900s, the territory under the companyís reign was taken over by the British government and thus, Nigeria became a British colony. Attempts of monetary reforms proved fruitful when in 1907, the country minted its own coins for the first time in its history denominated in West African pound. In 1913, West African Currency Board was established to issue the coins for the country and in 1915; it was also permitted to issue pound notes at par with British pound sterling. All this time, manilla coins were in circulation and were withdrawn and exchanged with notes and coins in 1948.

The Nigerian central bank was established in 1959 and at the same time West African pound was replaced by the Nigerian pound. Nigeria gained independence in the year 1960 but was recognized as republic in 1963. The new and decimalized currency naira was announced in 1971 but it didnít come in circulation before 1973. The state of biafra was not a part of Nigeria then and issued its own currency until it was merged into Nigeria in 1970.

Factors affecting the exchange rates between two countries


The volatility in the foreign exchange rates depends upon a numerous macro economic factors that have different degrees of importance to different economies of the world. Some special and exceptional factors affecting the rates may also exist in the case of different countries. Following are shown the common factors on which the foreign exchange rate depends

  • Flow of imports and exports between the countries
  • Flow of capital between the countries
  • Relative inflation rates
  • Fluctuation limits on exchange rate imposed by the governments of the countries
  • Merchandise trade balance
  • Rate of inflation in the country
  • Flow of funds between the countries for the payment of stock and bond purchases
  • Relative growth
  • Short term and long term interest rate differentials
  • Cost of borrowings
 
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