Exploring Currency Depreciation: Implications and Response Methods Unraveled
In recent years, several countries have resorted to devaluing their currencies as a means to boost export competitiveness and address trade imbalances. This practice, while not without consequences, has significant implications for trade and economies.
Nigeria's Naira Devaluation
The Nigerian naira experienced a sharp depreciation from about ₦460 per USD in January 2023 to around ₦1,540 per USD by mid-2025, marking more than a threefold devaluation over two and a half years. This devaluation has had a profound impact on Nigeria’s trade and economy.
The weaker naira makes imports substantially more expensive, contributing to inflation pressures (with inflation rates over 25%), while potentially boosting export competitiveness by making Nigerian goods cheaper for foreign buyers. However, this move has also resulted in high inflation, reduced purchasing power, depletion of foreign exchange reserves, and an overall uncertainty that deters investment in naira assets.
China's Yuan Stability
In contrast, China’s yuan has demonstrated relative stability and resilience against the U.S. dollar between 2023 and 2025. The People's Bank of China (PBOC) has conducted calibrated interventions, including rate cuts and FX operations, to manage currency volatility and preserve economic stability despite global pressures. This stability has supported Chinese firms in expanding globally and attracted foreign capital, although underlying data irregularities prompt calls for continued monitoring.
Global Currency Movements and Gold Prices
During this period, global investors have favoured strategic asset allocation by reducing exposure to the U.S. dollar due to fiscal concerns and shifting toward currencies of countries perceived as having more attractive economic prospects, including emerging markets with higher-yielding currencies like the Colombian peso and Indian rupee.
Simultaneously, gold prices surged from $2,000 to over $3,300 per ounce between mid-2023 and mid-2025, reflecting its role as a strategic reserve asset and hedge against currency depreciation and economic instability.
Summary
|Country/Region|Currency Movement|Impact on Trade|Impact on Economy| |-|-|-|-| |Nigeria|Naira devalued ~3.3x (₦460 to ₦1,540 per USD, 2023-2025)|More expensive imports; potential export competitiveness gains|High inflation, reduced purchasing power, FX reserve pressure, investment uncertainty| |China|Yuan stable with controlled depreciation and interventions|Maintained export competitiveness amid U.S. tariff tensions|Balanced growth, foreign capital attraction, strategic monetary policy| |Global|US dollar weakening vs selected currencies; gold prices surging|Shift in trade and investment flows|Increased demand for safe-haven assets amid geopolitical and currency risks|
This summary captures the key recent cases of currency devaluation and their nuanced effects on trade and economic conditions. Devaluation is a strategic adjustment by governments to lower the value of their national currency relative to other currencies, aiming to enhance export competitiveness and address trade imbalances. However, it's essential to consider the potential consequences on inflation, purchasing power, and investment flows.
Investors have increasingly turned towards high-yielding currencies like the Colombian peso and Indian rupee, as they diversify away from the U.S. dollar due to fiscal concerns.
Devaluation of the Nigerian naira, as seen by its depreciation from ₦460 to ₦1,540 per USD, has led to high inflation, reduced purchasing power, depletion of foreign exchange reserves, and investment uncertainty.
A strong focus on governance and managing currency volatility, as demonstrated by China's yuan stability, can support economic expansion, attract foreign investment, and maintain global competitiveness, despite external pressures.
