“As the Naira is effectively pegged officially to a “reserve” currency , speculators can attack such a currency for profit if the country is perceived to have insufficient foreign reserves to meet demand. Because our inflation rates at 17% are way higher than those “reserve-currency” countries, again we are exposed to possible currency attacks.
“Such traders will borrow the Naira from Nigerian banks, convert it to, say, dollars, then buy short-interest paying Nigerian bonds. If, as the speculators anticipate, the central bank devalues the naira, the traders sell the bonds in the foreign currency, convert them into naira, and repay their original loan.
“While there will likely be an immediate spike in the price of the dollar, this move will have two advantages. The first is that, because Nigeria has a big, profitable economy and market, dollars will likely swamp the market seeking profits for investors. The former presidential candidate of the Young Progressive Party in the 2019 election also said that one of the best ways to strengthen the naira is to make the “right trade policies to support and create such incentives for massive exports of finished, value-added goods from Nigeria”.
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