Nigeria’s strengthening external reserves have renewed debate over whether the naira remains undervalued and whether the country should allow the currency to appreciate significantly to ease pressure on households and businesses.

Nigeria’s gross foreign exchange reserves rose above $55 billion in September 2026, reaching about $55.25 billion, according to the Central Bank of Nigeria (CBN). The figure represents the country’s highest reserve level in more than 18 years.

At the same time, the naira has been trading at around ₦1,330 to the dollar in the Nigerian Foreign Exchange Market (NFEM). CBN data showed an official NFEM rate of ₦1,329.51/$ on September 25, while the rate stood at about ₦1,329.16/$ at the end of September 30.

The combination of stronger reserves and a relatively weak naira has prompted arguments that Nigeria now has greater room to support the currency.

There is some international evidence that the naira may be weaker than suggested by underlying economic fundamentals, although the scale of the alleged undervaluation is contested.

In its 2026 Article IV assessment of Nigeria, the International Monetary Fund said its EBA-Lite model estimated a 25.6% real-effective-exchange-rate gap, indicating that the naira was weaker than the level implied by the model’s assessment of economic fundamentals. The IMF said closing that gap could involve greater two-way exchange-rate flexibility and continued improvements in foreign-exchange market functioning.

However, that finding should not be interpreted as proof that the naira should immediately appreciate by 25% or 50% against the dollar.

Exchange-rate valuation models are different from a fixed recommendation for the market exchange rate. The actual value of the naira is also influenced by inflation, productivity, capital flows, oil and gas earnings, imports, fiscal policy, monetary policy and investor confidence.

The size of Nigeria’s reserves is significant, but gross reserves should not be confused with foreign currency that can simply be spent to defend a particular exchange rate.

The IMF has previously distinguished between Nigeria’s gross and net international reserves. At the end of 2025, the IMF estimated gross reserves at about $46 billion, while net international reserves stood at approximately $35 billion. The Fund also noted that Nigeria’s official CBN definition of gross reserves differed from the IMF’s measure.

By September 2026, the CBN reported gross reserves of more than $55 billion. The increase has been supported by stronger external-sector conditions, including improved foreign-exchange inflows and diaspora remittances.

The CBN has also said that net usable external reserves had improved substantially, although this measure remains different from the headline gross-reserves figure.

A sustained appreciation of the naira could reduce the naira cost of imported goods and services, particularly products whose prices are heavily influenced by foreign exchange.

Businesses that import machinery, raw materials, pharmaceuticals, technology equipment and other inputs could also benefit from lower import costs if the appreciation were sustained and passed through to domestic prices.

For households, cheaper imported goods could provide some relief from the cost-of-living pressures that have persisted despite the recent decline in headline inflation.

The IMF, however, has warned that conditions remain difficult for many Nigerians. Its June 2026 assessment said poverty had reached 63% at the national poverty line and estimated that 27 million Nigerians faced food insecurity in late 2025.

A rapid or policy-driven appreciation would not necessarily translate automatically into lower prices across the economy.

Nigeria’s economy remains heavily dependent on imported inputs, while oil and gas continue to account for a large share of foreign-exchange earnings. A stronger naira could reduce the naira value of dollar-denominated government revenues and exporters’ earnings.

It could also affect non-oil exporters by making their products relatively more expensive in international markets.

For that reason, the IMF has supported greater exchange-rate flexibility rather than prescribing a particular naira-to-dollar target. Its assessment said foreign-exchange intervention could be used to address disorderly market conditions but should not substitute for broader macroeconomic adjustments.

The argument also challenges descriptions of the economy inherited from former President Muhammadu Buhari as fundamentally damaged or “cancer-infected.”

That characterization is a political and economic judgment rather than a standard economic measurement. Nigeria entered the current administration with significant fiscal, monetary and foreign-exchange challenges, but assessments of the Buhari years vary depending on the indicators examined, the period considered and the policy effects being measured.

The IMF’s 2026 assessment, for example, said reforms undertaken since 2023—including the removal of fuel subsidies, tighter monetary policy and exchange-rate liberalisation—had improved macroeconomic stability and rebuilt external buffers, while stressing that living conditions remained difficult for many Nigerians.

The more immediate question, therefore, is how Nigeria manages the stronger external position it has accumulated.

The naira’s position has changed considerably from the period of acute foreign-exchange shortages that preceded the current reforms. The CBN says foreign-exchange pressures have receded, reserves have strengthened and the market is functioning with greater stability.

The debate now centres on whether stronger reserves should translate into greater currency appreciation, or whether policymakers should continue allowing the exchange rate to respond primarily to market conditions while using reserves to manage disorderly movements.

The evidence supports the view that Nigeria’s external position has improved substantially and that some measures of exchange-rate valuation show the naira weaker than economic fundamentals would imply. But the specific claim that the currency is 50% undervalued, or that a 25% to 50% appreciation would automatically relieve widespread poverty, remains an argument requiring further economic evidence rather than an established fact.

For now, the central policy challenge is balancing currency stability, inflation control, reserve accumulation, export competitiveness and the purchasing power of Nigerian households.