Naira Hits Record Low of N925/$1 as Demand Outpaces Supply in Forex Market.
The Nigerian naira has experienced a steep decline, reaching an all-time low of N925/$1 on the parallel market. This significant drop is attributed to an overwhelming demand for foreign currency that has surpassed the available supply. The plunge comes as a direct consequence of the recent liberalization of the foreign exchange regime, marking a departure from previous policies under the leadership of President Muhammadu Buhari.
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Experts, including the World Bank and various financial agencies, had long expressed concerns about the dual exchange rate system and its adverse effects on the economy. During the previous administration, a select few individuals were reportedly benefiting from the situation by arbitraging between official and parallel rates.
President Tinubu, who took office on May 29, 2023, highlighted the need for a unified exchange rate to channel funds towards productive investments and away from unproductive arbitrage activities.
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The Central Bank of Nigeria (CBN) initiated a significant change on June 14, 2023, by abolishing the segmentation of the forex market into distinct windows. Deposit Money Banks were permitted to freely float the naira against major international currencies, allowing market forces to dictate exchange rates rather than central bank intervention.
Despite these efforts, the naira’s value continued to plummet on the parallel market. Reports indicate that the exchange rate reached as high as N915/$1 for cash trades in Abuja.
In Lagos, the commercial hub, the dollar was exchanged for amounts ranging from N880 to N890. The Murtala Muhammed International Airport and other key locations similarly witnessed these fluctuations.
CBN Dollar to Naira exchange rate
The gap between the parallel market and the Investors and Exporters (I&E) window has grown substantially, with the I&E window closing at N757/$1. The peer-to-peer market for cryptocurrency trading also saw exchange rates surge above N900/$1.
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Since the unification of exchange rate windows on June 14, 2023, the naira has weakened by 19.8% against the dollar. This represents a considerable decline compared to the depreciation of 2.5% recorded between January and June of the same year. The disparity highlights challenges in forex supply, leading to exchange rate volatility and triggering demand from various sectors.
Forex traders have pointed to supply scarcity as a significant driver of the naira’s depreciation. They highlighted an imbalance between buyers and sellers, contributing to the exchange rate gap. The Association of Bureaux De Change Operators of Nigeria (ABCON) even called for the ban of Binance operations, citing it as a competition to the parallel market.
Despite the CBN’s interventions, there’s a growing consensus that addressing the supply side of forex is crucial for stabilizing the situation. As the situation continues to unfold, experts emphasize the need for sustainable solutions to prevent further deterioration of the naira’s value and to restore confidence in the economy.
