Nigeria’s beleaguered currency, the Naira has slumped to a record low against the dollar on the widely used parallel market as confounded Nigerians rush to buy greenbacks a week after the central bank said it would redesign higher-value notes.
The CBN policy has turned into a rout with currency traders in the unauthorized parallel market offering as much as 830-850 naira per dollar on Tuesday in Lagos.
Umar Salisu, a bureau de change operator who tracks the data in the nation’s commercial capital said tgere is frantic demand for tge dollar.
The record low widens the spread between the official exchange rate, which closed at 442.49 to the dollar, to the largest-ever gap of 88%.
Demand for dollars in Africa’s largest economy has surged since the central bank last month announced a plan to replace 200-, 500- and 1,000-naira notes from mid-December, a policy now described by many as reckless.
The old bills will cease to be legal tender at the end of January. The central bank argues that the redesign will mop up excess cash and help it better control money supply, while curbing criminality.
The central bank claims that as much as 85% of currency in circulation is outside the vaults of the nation’s banks, as has been the case for decades in Nigeria.
Street traders of the currency have had to pool resources in order to meet the increased demand, Salisu said in a Bloomberg interview.
“Buyers come and we don’t have enough to give them, so we share the business with other traders.”
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In the capital, Abuja, where rates are generally higher, the naira traded as high as 845 per dollar, while in the northern commercial city of Kano, the rate hit 830, according to street traders.
Nigeria maintains a multiple-exchange-rate regime, dominated by an official spot rate that is tightly controlled by the central bank. In the unauthorized black market, the currency is freely traded.
Finance Minister Zainab Ahmed warned that the currency redesign may weaken the naira as residents rush to change the old notes.
But President Muhammadu Buhari backed the central bank, arguing the move would punish currency hoarders and curb inflation that hit a 17-year high in September.
Even the president himself must now acknowledge that the policy he has said he endorsed is causing more havoc.
Africa’s most populous nation is in the throes of a debilitating inflation crisis caused largely by the volatility of the exchange rate according to leading Economist, Busmarck Rewane who has popularised a model measuring factors responsible for the surge in Nigeria’s inflation.
The looming Jan. 31 deadline, when the old notes will expire, is driving the rush for dollars, said Abdullahi Tanko, a currency trader in Kano. “They are trying to beat the deadline,” he said.
