Nigeria’s currency on Wednesday hit N522 per dollar as traders in the parallel market, popularly known as the black market, were seen hoarding dollars for fear of losing money.
This followed the decision by the Central Bank of Nigeria (CBN) to discontinue dollar sales to the Bureau De Change (BDCs).
With the latest rate, Naira has lost 3.36 percent compared with N505/ traded on Tuesday.
However, across the streets, Naira fell to N530 per dollar from N505/$ on Tuesday. This represents a 4.95 percent loss in the value of Naira against the US dollar in one day.
An investigation by BusinessDay showed that traders are hoarding dollars for fear of losing money as there is no determined rate at the time of reporting.
Some Lagos Street traders are selling dollars between N528 and N530 per dollar. At Lagos airport, the dollar is being quoted at N510. Elsewhere, traders are playing watch and wait, to know where the rate is going.
Godwin Emefiele, governor of the CBN, who announced the decision on Tuesday after the Monetary Policy Committee (MPC) meeting, noted that the central bank sells about $110 million to BDCs every week.
He said going forward, those funds will be made available to commercial banks to meet genuine demand for foreign exchange.
A banker who spoke with BusinessDay on Wednesday under anonymity said there is no dollar supply yet from the CBN and that the CBN would always send a circular to banks to that effect.
Olusegun Akintunde, an analyst at Polaris Bank Limited, said pushing dollar sales to banks to meet the legitimate needs of the end-users would likely lead to more income to the banks.
On the black market, he said speculatively, a lot of traders will hold dollars and that holding dollars would create scarcity and a hike in rates.
He said the market will know where the rate will settle by next week. The flow of foreign exchange from BDCs to parallel markets is no longer there and this will create a severe supply gap, he said.
Emefiele said the banks must make every effort to meet genuine demand as soon as possible. With this move, the CBN seeks to reign in speculative demand for foreign exchange and take on the challenge of meeting all genuine demand.
The World Bank and the International Monetary Fund (IMF) had commended the CBN’s recent attempts to unify its multiple exchange rates but had said that further efforts are required to fully unify Nigeria’s rates and allow the Investors and Exporters (I&E) rate to move towards a market-clearing level. This according to Tellimer.com, continues to be the key sticking point to the World Bank’s undisbursed US$1.5bn of funds.
The CBN has maintained a peg of 410/US$ on the I&E window (now the official rate) since February 2021, having last devalued its peg before that in March 2020, exacerbating FX shortages.
A report from the London-based Tellimer.com stated that from an average of US$2.8bn in 2019 and US$3.7bn in Q1 20, monthly inflows through the I&E market have been stagnant at just US$750mn on average since April of last year.
Alongside restrictions on access to FX for 45 imported items, FX shortages have pushed demand to the parallel market and drove the naira to a record high of 504/US$ earlier this month. This has added to inflationary pressures, with the World Bank estimating that 90 percent of manufacturers’ current FX needs are sourced on the parallel market.