The foreign exchange (FX) market trading closed for the year on Friday with naira losing 96.55 percent of its value against the dollar at the official market.
At the end of 2023 trading, naira depreciated by 96.55 percent year-on-year as the dollar was quoted at N907.11 on Friday compared to N461.61 quoted at the end of 2022 at the Nigeria Autonomous Foreign Exchange Market (NAFEM), data compiled by BusinessDay from the FMDQ indicated.
On a day to day basis, naira appreciated by 13.04 percent as the dollar was quoted at N907.11 on Friday as against N1,043.09 on Thursday.
Willing buyers and willing sellers quoted the dollar as high as N1,224.10 on Friday stronger than N1,235.65 quoted on the spot trading on Thursday. The lower rate strengthened to N700 on Friday from N720/$ quoted on the spot on Thursday.
Naira fell to N1,043.09 per dollar on Thursday after depreciating to an all-time low of N1,099/$1 on December 8, 2023.
At the parallel market, also known as black market, naira lost 62.16 percent or N460 per dollar as the dollar was sold for N1,200 on Friday the last trading day of 2023 from N740 in 2022.
The exchange rate gap between the official and the parallel market remained wide at N293 at the end of 2023, wider than N279 in 2022.
According to the World Bank, the FX market has remained volatile and is still in a period of continuing adjustment to the new policy approach.
Following the announcement to merge all the official FX windows and reaffirmation of the willing buyer-willing-seller (WBWS) mechanism at the official FX rate, there have been significant fluctuations in the exchange rate, in both the official and parallel markets.
While the parallel market premium fell significantly in July 2023 following the announcement to merge FX windows, it re-emerged in August 2023 and, in October, even briefly rose to pre-June levels.
The premium changes significantly on a daily basis, as the official exchange rate has fluctuated up to 26 percent in one day and the parallel market rate has also been volatile.
On exchange rate policy, the World Bank said additional measures can be taken to increase market stability. The CBN has reaffirmed its commitment to the WBWS mechanism, yet liquidity in the official (NAFEM) market has remained thin. Further monetary policy tightening is expected to help underpin the value of the naira.
In its latest Nigeria development update, the World Bank said there is also a need to increase FX supply in the market. Facilitating FX flows, especially from all exports, through the NAFEM can help provide additional volumes in the official window that can help provide stability.
“In addition, clarity on the CBN’s net reserve position, and on the CBN’s continued progress in clearing the FX backlog, would also strengthen market confidence,” the World Bank said.
Demand for dollars for school fees payments, medical bills, tourism, importation of inputs and other goods are high across major commercial banks.
Faced with limited supply, manufacturers, investors and individuals have resorted to the parallel market to purchase foreign currency.
On June 14, 2023, the CBN collapsed all segments of foreign exchange markets into the Investors and Exporters (I&E) forex window, now NAFEM.
A circular signed by Angela Sere-Ejembi, director of financial markets, said applications for medicals, school fees, business travel allowance and personal travel allowance (BTA/PTA), and SMEs would continue to be processed through deposit money banks.
In October 14, 2023, the CBN restored the 43 items prohibited from access to foreign exchange, eight years after, a move seen to usher in a single exchange rate.
“Stabilizing the exchange rate is another critical aspect of our efforts,” said Yemi Cardoso, governor of the CBN.
According to him, “to ensure stability, curb speculation, and restore confidence in the foreign exchange market, we have initiated the payment of unsettled forward foreign exchange obligations, and these payments will continue until all obligations are cleared. This intervention has already had a positive impact on liquidity and has led to a significant appreciation of the exchange rate at certain
points. The CBN also recently lifted the ban on 43 items from accessing the official foreign exchange market, allowing market
forces to determine exchange rates based on the Willing Buyer – Willing Seller principle. We are witnessing clear progress in stabilizing the Nigerian foreign exchange market.”
