The Fluctuating Value of ₦1 Million: Understanding its Impact and How to Mitigate it

Credit: Oyemike Princewill

The value of ₦1 million in 10 years can have a significant impact on an individual's financial situation. As seen in the table below, the value of ₦1 million has fluctuated greatly over the past decade, with the highest value being $6,423 in 2013 and the lowest value being $2,195 in 2023. This means that if someone had saved ₦1 million in 2013, it would be worth almost $3,000 less in 2023.

This fluctuation in value can greatly affect an individual's purchasing power and ability to save for the future. For example, if an individual had planned to use ₦1 million to purchase a home or invest in a business, the decrease in value would greatly impact their ability to do so.

Additionally, the parallel market rate of $1,337 in 2023 is significantly less than the official rate, which further highlights the impact of currency fluctuations on the purchasing power of Nigerian citizens.

There are several reasons for the fluctuations of the Nigerian naira (₦) over the past decade. Some of the main reasons include:

  1. Oil prices: Nigeria is heavily dependent on oil exports, and fluctuations in oil prices greatly impact the value of the naira. A decrease in oil prices can lead to a decrease in the value of the naira.

  2. Inflation: High inflation rates can also lead to a decrease in the value of the naira. Inflation erodes the purchasing power of the currency, making it worth less in relation to other currencies.

  3. Political instability: Political instability can also lead to a decrease in the value of the naira. Investors may be hesitant to invest in a country with a volatile political climate, leading to a decrease in demand for the naira.

  4. Central bank policies: The Central Bank of Nigeria (CBN) has implemented policies aimed at supporting the naira, such as foreign exchange controls, however these policies can have unintended consequences.

  5. Foreign investment: The level of foreign investment in Nigeria can also impact the value of the naira. A decrease in foreign investment over the last decade has led to a decrease in the demand for the naira, leading to a decrease in its value.

It's worth noting that all these reasons are interrelated and can amplify each other effect. Additionally, these reasons are not specific to Nigeria, they are common to most countries.

In order to mitigate the effects of currency fluctuations, it is important for individuals to diversify their savings and investments. This can include investing in assets that are not directly tied to the Nigerian naira, such as stocks, bonds, or real estate in other countries. It can also include diversifying your investment portfolio to include a mix of assets, such as cash, bonds, stocks, and real estate.

Furthermore, individuals should also consider seeking professional financial advice in order to make informed decisions about their savings and investments.

In conclusion, the fluctuation in the value of ₦1 million over the past 10 years highlights the importance of considering currency fluctuations when making financial decisions. By diversifying savings and investments and seeking professional advice, individuals can take steps to mitigate the impact of currency fluctuations on their financial situation.