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Whether you are on the receiving end of Naira in Nigeria from someone in the UK or on the sending end of Pounds to someone you love in Nigeria, you might have wondered why the exchange rate between the British Pound (GBP) to Nigerian Naira (NGN) always fluctuates.

I have also asked myself this same question because I send money back home to Nigeria every month. To be honest, the reason I am concerned is not because I really want to know the “ins” and “outs” of the financial market but because maybe if I waited for a week or even a few days, the £200 I sent to my sister for which she received 93,000 NGN could have been 97,000 NGN. Trust me, that extra 4,000 NGN will go a long way for her as a student in a public university in Nigeria.

Reason Why Pound to Naira Exchange Rate Fluctuates.

So, this brings me back to the question – why does the Pound to Naira exchange rate keep moving up and down?

Take a look at the diagram below showing the Pound to Naira exchange rate over the past year. You will notice that the lines keep moving up and down.

GBP NGN exchange rate 1 year
GBP NGN exchange rate 1 year

Pound Sterling to Nigerian Naira exchange rate, 3rd October 2019 – 3rd October 2020 (Source: Fx.Net)

I know the topic at hand is about Pounds and Naira but in order to have better understanding, it is important to point out that Nigeria’s primary trading and investing partner is the United States. Therefore, the Naira has been pegged to the US Dollar at various levels over the years. A “currency peg” by the way is basically when the value of one currency is fixed to another’s; where one goes – the other follows. In other words, the Central Bank of Nigeria maintains the Naira’s value at a fixed exchange rate to the Dollar, which rises and falls along with the Dollar, by artificially controlling the value of the Naira against the Dollar.

The historical movements of the Naira against the Dollar are well documented, I’ve included a short overview here. The CBN maintained a peg of roughly 200 NGN against the USD until June 2016. Then, as Dollar reserves ran dry, the government changed tack and devalued the currency. The Naira immediately plunged by 30%. The CBN intervened to keep the currency from depreciating further. From late 2017 until the beginning of 2020, the USD/NGN rate hovered near 360. In 2020, due to the impact of COVID-19 and the resulting decline in oil prices, the CBN devalued the Naira in March and then again in July. As of August 2020, the USD/NGN exchange rate hovers near 380. The decision to devalue the currency came against the backdrop of remarks by Governor Godwin Emefiele that the CBN is moving towards unifying the official rate closer to the NAFEX exchange rage (the rate used by investors and exporters, and which acts as a spot-rate for the Naira) and remarks by President Muhammadu Buhari pledging the convergence of the rates in view of securing financing from multilateral lenders to cover the balance of payment needs and budget shortfalls arising from the plunge in oil prices.

USD NGN exchange rate

US Dollar to Nigerian Naira exchange rate trends (Source:

Why the pegging though?

Well, it is important to point out that there are some specific economic reasons why the Naira is pegged to the Dollar:

  • It makes trade more stable and exports more competitive. Controlling the exchange rate and keeping the Naira artificially low against the Dollar helps to support the competitiveness of Nigerian goods sold abroad. This matters a lot as Nigeria is a country that relies heavily on the export of its oil (crude sales account for up to 70% of government revenue and more than 90% of the country’s export earnings). The US Dollar is the currency used in international commodity markets such as petroleum.
  • It helps to maintain a stable domestic economy and control inflation. The pegging of the Naira to the Dollar helps provide stability to the economy because of the relative stability of the Dollar. Foreign exchange swings have been known to adversely affect an economy and its growth outlook. And, by shielding the domestic currency from volatile swings, the Central Bank can reduce the likelihood of a currency crisis and rising prices.

There are also downsides to the economy with the Naira having a fixed rate to the Dollar:

  • Pegging encourages the creation of a black-market. By setting the Naira rate of exchange against the Dollar, the government artificially overvalues the Naira relative to what its market value would be if it were a floating currency. Those in possession of Dollars may be able to use the black-market to buy the local currency at better exchange rates than they can get officially. The black-market rate gives you an idea of what the exchange rate of Naira would be if it was not artificially fixed. Nigeria has a significant black-market for foreign currency. Find out more on this topic below.
  • It can be expensive to maintain a fixed exchange rate. The Central Bank must have sufficient foreign exchange reserves of US Dollars as it has to constantly buy and sell Naira in order to maintain its value against the Dollar. The problem with huge currency reserves is that the massive amount of funds or capital that is being created can create unwanted economic side effects – namely higher inflation. The more currency reserves there are, the bigger the monetary supply – causing prices to rise.


This brings us to the question of why then does the Pound to Naira exchange rate fluctuate? The reason is because of the fluctuation in the US Dollar and British Pound exchange rate.

So, when the Pound performs stronger against the Dollar, the Pound also performs stronger against the Naira; thus you can get more Naira for your Pounds. The reverse is also true. When the Pound performs weaker against the Dollar, the Pound performs weaker against the Naira, meaning that you can get fewer Naira when exchanging Pounds.

In a nutshell, the exchange rate between the Pound and Naira rides on the exchange rate between the Pound and US Dollar. What happens between the Pound and Dollar currencies affects and takes a toll on the Pound to Naira exchange rate.

This is evident in the historic exchange rate fluctuation between the Pound to Dollar and Pound to Naira. You will notice that the two graphs are practically indistinguishable.

GBP NGN exchange rate 1 year
GBP NGN exchange rate 1 year

British Pound to US Dollar and British Pound to Nigerian Naira exchange rate trends (Source:

There are many political and economic factors that might affect the strength of the Pound against the Dollar. Take for example the result of the recent general election in the UK which took place on 12th December last year. The Pound surged against the Dollar in the run up to the general election with exit polls predicting a huge Conservative majority and following the Conservative win, marking the Pound’s highest level against the Dollar in 18 months. The Pound to Naira mimicked this trend increasing from GBP 1 to 467.48 NGN on 2nd December to GBP 1 to 487.10 NGN on 13th December (the day after the election).


Nigeria Operates Multiple Exchange Rates.

Another thing to touch on about the Naira is the fact that Nigeria operates a multiple exchange rates system.  This means that there are different values for the Naira against the Dollar depending on who is making the foreign currency exchange.

Some rates are available only to government officials and projects, some to the banks, some even to religious pilgrims and of course there are the ever-present black-market rates.

The CBN Governor Godwin Emefiele first introduced the dual exchange rates in 2015 amid a severe shortage of foreign currency after the 2014 oil price crash as a way to counter the impact of falling prices for crude oil and to maintain foreign exchange (forex) liquidity while simultaneously allowing investors to trade their own Dollars at a more market-determined rate.

Nigeria’s multiple currency exchange rates/windows includes:

  • the official exchange rate from the CBN,
  • an interbank rate (where banks lend to each other),
  • rate used by international money transfer companies/operators,
  • an Importers and Exporters (I&E) / Nafex Window,
  • rate for religious pilgrimages,
  • rate for consumers who want to pay for schools and medical fees abroad,
  • a black-market rate.

The Importers and Exporters window is considered the closest to the true market rate and is the most liquid exchange.

The black-market formerly known as the ‘parallel market’ rate on the other hand is the unofficial market of informal street traders who sell Dollar at a much higher rate.

At its simplest, the black-market rate would be the amount you would exchange Dollar for Naira from the “Abokis” lurking on most street corners in Nigeria. (Note: Aboki means “my friend” in Hausa).

There’s a huge gap between the official CBN rate and the rate on the black-market. The black-market rate is fuelled by high and/or low supply and demand for the foreign currency and it is higher than the official CBN rate.

The International Monetary Fund (IMF) has long urged Nigeria to do away with its multiple exchange rates system as according to them, it “creates confusion and deters foreign investments”. They advise instead to unify its exchange rates to achieve desired economic growth.

In July 2019, speaking at the Special Policy Dialogue Colloquium, entitled “Policy Change – The Enabler of Sustainable Growth”, the International Monetary Fund’s Senior Resident Representative and Mission Chief for Nigeria, Amine Mati, and CBN’s Director, Monetary Policy Department, Moses Tule, disagreed on the impact of the multiple exchange rates policy on inflation, trade and the economy’s growth.

The IMF chief said: “Countries with multiple exchange rates have lower growth and higher inflation. A more flexible exchange rate in a reform scenario in Nigeria could boost the Gross Domestic Product in the medium term. Nigeria has Investors’ and Exporters Forex Window, CBN official rate, parallel market rate, Retail Secondary Market Intervention Sales and wholesale SMIS and these stifle growth and raise inflation.”

The IMF believes that the unification of the Nigerian currency exchange rates will “remove distortions and help economic diversification”.

The multiple exchange rates in Nigeria comes with both merits and demerits. Let’s touch on some of them below.

Pros of Nigeria’s Multiple Exchange Rates:

  • The multiple exchange rates system in Nigeria allows the government to reduce pressure on foreign currency reserves when a shock, like a sudden drop in oil prices, hits the economy and causes investors to panic and pull out.
  • They also help the government to subdue local inflation and importers’ demand on foreign currency thereby strengthening the consumption of local products.
  • Furthermore, the multiple exchange rates system allows importers of certain goods considered essential to the economy to have a preferential exchange rate.

Cons of Nigeria’s Multiple Exchange Rates:

  • The multiple exchange rates can encourage round-tripping because it allows people to access money from the cheap window and take it to a more expensive window. It also can lead to the creation of a black-market, as is the case in Nigeria.
  • It is confusing for foreign investors. Multiple exchange rates don’t send a positive signal to foreign investors and reduce the amount of investment that flows into the economy.


Pound to Naira Exchange Rate.

Now that you have a good understanding as to what makes the Pound to Naira exchange rate move up and down, I bet the next question would be what the exchange rate is as of today because a good exchange rate means more money for your family, friends and loved ones that you send money to while a bad exchange rate can leave you, and them, out of pocket.

What does it really matter though?

Remember in the beginning of the post I talked about sending GBP 200 to my sister in Nigeria and how a change in the exchange rate would have made her receive more money?

Exactly, a strong currency can be used to buy higher amounts of a weaker one.

So, if you are planning to send money from the UK to someone in Nigeria, it will be good news for you if the British Pound is strong and especially if it is strong against the US Dollar – this means more money for the receiver in Naira.

To stress the importance of the exchange rate once more, I will re-iterate the idea of me sending GBP 200 to my sister in Nigeria.

  • If the exchange rate is £1 = ₦465, my sister will receive ₦93,000
  • If the exchange rate is £1 = ₦485, my sister will receive ₦97,000

That extra 4,000 NGN goes a long way in Nigeria. (I remember when I was a student in Oyo and I used to fill up my fridge with groceries with about 2500 – 3,500 NGN. So, I know the importance of that extra money.)

There are a lot of factors that affect exchange rates as you know by now. In order to keep tabs of the latest exchange rate of Pounds to Naira, you should follow the news to know what’s happening within the country because things like political and economic events can have a massive impact on the rise of the Pound and drop of the Naira. So, being aware of what’s happening around you gives you a better understanding as to why the exchange rate is what it is at any given time.

Written by Daniel Nejo