• Monday, May 20, 2024
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Exchange rate steadies amid new naira scarcity

Dollar nears N2,000 on black market as scarcity worsens

Naira/dollar exchange rate has steadied at the official foreign exchange market as the scarcity of naira redesign persists in Africa’s most populous country.

At the Investors and Exporters (I&E) forex window, Nigeria’s official foreign exchange market, dollar was quoted at around N461/$1 year-to-date, though on a weakening level compared to N456.50 quoted on December 23, 2022, data from the FMDQ indicated.

In the last three trading days, the dollar has traded at N461.50/$1 at the I&E window, also known as Nigerian Autonomous Foreign Exchange Fixing (NAFEX).

The local currency on Thursday appreciated against the dollar, gaining 0.27 percent (N2) to N752 per dollar as against N754 closed on Tuesday at the parallel market, popularly called black market.

Year-to-date, naira has lost 1.86 percent (N14) as the dollar traded at the rate of N738 at the first trading day of the year to the current rate of N752/$1, at the unofficial market.

“Demand for the dollar has slowed as importers are not making more sales since the scarcity of the new naira,” a trader who sells dollars to importers told BusinessDay.

The Central Bank of Nigeria (CBN) on December 15, 2022 rolled out the redesigned naira and planned to phase out the old naira notes by January 31, 2023, but following strong pressure from the Senate and members of the public, it extended it to February 10, 2023, after which the old naira notes ceases to be legal tender.

Commenting on the impact of the redesigned naira policy on the exchange rate, Uche Uwaleke, a professor of Capital Market at the Nasarawa State University, Keffi, said, “the impact is likely to be positive since the currency redesign is meant to reduce currency in circulation which should in turn reduce the amount of naira that is used to chase the dollar, especially in the parallel market.”

“On the exchange front the market levels have stabilised over the period within the bound of N740/N750 bid and offer rates to the greenback,” said Aminu Gwadabe, national president of the Bureau De Change (BDC) Operators Association of Nigeria, adding that the liquidity in the market is still low with high demand pressure.

Gwadabe said the focus of the CBN now is to drive all transactions electronically more especially with the launch of the Afrigo national domestic card payments aimed at reducing or eliminating the dominance of visa and master cards for payments.

Targeted actions like no cash withdrawal over the counter, cash only through ATM, POS were introduced to enhance inclusiveness, he said.

According to him, the unintended challenges to the small traders in the ecosystem and beyond, to the unbanked and under-banked have created several queues nationwide on banks’ ATMs.

“It is advisable for the CBN to consider setting a limit on banks over the counter-cash payment for the redesign currency to aid the circulation of the new north and sensitization,” he said.

Read also: New Naira: queues at ATMs will disappear soon says CBN

Godwin Emefiele, the governor of the apex bank has directed deposit money banks to start over-the-counter payment of new naira to customers, with a daily limit of N20,000.

Gwadabe said the CBN should also look at the spreads of the BDCs and harness them for inclusion and distribution of the AfriGo card domestic national card payments.

“Already we are facing the hegemony of crypto currencies and there is the need for concerted efforts to prepare, collaborate and implement evidenced based solutions to the perennial FX volatiles,” Gwadabe said.

Last week, Moody’s Investors Service, a global credit rating agency downgraded the government’s long-term foreign currency and local-currency issuer ratings, as well as its foreign currency senior unsecured debt ratings from B3 to Caa1, and changed the country’s outlook to stable.

The agency further lowered Nigeria’s local currency and foreign currency ceilings to B2 and Caa1 respectively, previously from B1 and B3.