The Naira hit an all-time low on Wednesday as the Nigerian currency traded at N920 to a US dollar on the parallel market, figures captured at AbokiFX showed.
This fall not anticipated by the monetary authority when it collapsed all FX exchange windows, as explained, was to help the currency attain its true market value and reduce the gap between the official and black-market rates.
Last month, the Economic Intelligence Unit (EIU) predicted, among other things, that the currency would trade at N1,018 to a U.S. dollar in 2027. A situation that prompted the research and analytical unit of the Economic Group to predict a return to a CBN-controlled exchange rate regime.
EIU had said that a return to the fixed or regulated control exchange rate system was because of a lack of sufficient experience in tackling the difficult challenges of obtaining a fair value of the naira without hurting the economy.
It said, “The CBN lacks experience in conducting monetary policy under a float, and the need to control rapidly increasing inflation will become more acute over time.
“Our forecast is finely balanced, but we expect a return to heavier exchange-rate management from the second half of 2023 as the naira slides beyond N800:US$1 from N770:US$1 in early July.”
The research company also admitted that the high rate of liquidity of the country’s FX reserve, which stands at $33.2 billion, puts the CBN in a good position to prevent the currency from falling to a point where it is almost impossible to redeem.
Speaking at his ministerial nomination interview session that was televised to more than 50 million Nigerians, Wale Edun, a finance expert, special adviser to the president on monetarily policies, and close confidant of President Bola Tinubu had suggested that the true value of the currency should be N700 per US dollar, as against the parallel market rate of N820 at that time.
“It is difficult to predict because the capital markets take all the liquidity of their own. I want to say that the fundamental value of the naira should be somewhere around N700/$1,” Edun said.
However, as of the close of business on Wednesday, the currency traded at N920 to a dollar on AbokiFX, while it traded between the bandwidth of N925 and N930 at the black market in Kano. This situation represents the biggest fall of the naira, since Africa’s biggest economy replaced the British Pound as its official currency on January 1, 1973.
In addition to the floating of the naira, the president announced the removal of feul subsidy, the introduction of student loans, and a few policy statements to outline his desire to lead the country towards a more capitalist economy.
During its second nationwide broadcast on Monday, July 31, the president disagreed with the prediction of the EIU (a return to a CBN-controlled rate system), preferring instead to stick with its decision to float the naira and allow market forces to determine its true trade value.
He promised that in the medium term, the gap between the official and black market rates will converge, giving the currency the perfect opportunity to attract much-needed foreign direct investment and grow the economy.
However, PricewaterCooper (PwC) forecast in its August 2023 report that inflation will continue to soar while the volatility in the exchange rate will continue to force perhaps the currency to hit record lows never seen before.
Joel Ehimare, a finance analyst with FBN Quest, suggested that the currency will experience more turbulent times. Ehimare attributes this turbulence to increased demand pressure, especially as schools in the UK, US, Canada, and other parts of the world near their September/Autumn resumption.
“I think the naira will fall even more, especially as students going out of the country for further education will demand for dollar, thereby mounting more pressure on the I&E and parallel markets,” he said.
“I also believe that the demand from the manufacturing sector for FX to enable them to buy much-needed inputs from abroad also contributes to this fall, especially as the I & E window find it difficult to meet up demands.”
Following the news of this rate, many had gone on social media, especially the microblogging app Twitter, to express their fears.
Some advised Nigerians to brace up for tougher times, as this new rate will negatively impact the cost of living.
Since most of the items purchased in the country are either imported or influenced by the dollar, the cost of living crisis is most likely to worsen.
“I am really afraid of this new rate,” Rose Ogbusua, a lawyer, tweeted in reaction to the new rate.
Kalu Aja, a renowned personal finance expert, reacted somewhat differently on his Twitter account about the fall of the naira.
Aja said, “You stopped Naira cards usage abroad, Nigerians put $ in domm acc, traded on WhatsApp groups You banned crypto in commercial banks, Nigerians got P2P, transferred via Binance You fixed arbitrary exchange rate to get dollar remittances on the cheap, Nigerians invented Abokifx You made $ scarce, Nigerian flocked to stablecoins, trading Naira pairs on exchanges Nigerians are not stupid. Anyone that thinks by regulation he can steal the wealth of hard working Nigerians is st$*id”