The Nigerian naira has recorded a gain of 4.49 percent against the dollar in seven days (one week) of trading driven by the policy measures of the Central Bank of Nigeria (CBN).
After trading on Wednesday naira appreciated to N1,418.78 per dollar after it peaked at N1,482.57 on January 30, 2023, at the Nigerian Autonomous Foreign Exchange Market (NAFEM), data from the FMDQ showed.
On a daily basis, naira gained 1.06 percent as the dollar was quoted at N1,418.78 on Wednesday compared to N1,433.89 quoted on Tuesday at the official market.
At the black market, also known as the black market, naira weakened by N10 as the dollar traded for N1,490 on Wednesday as against N1,480 on Tuesday, according to data collated from various street trading platforms.
The Nigerian foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the naira,” Yemi Cardoso, governor of the CBN said during sectoral debates by the House of Representatives.
According to him, factors contributing to this situation include speculative forex demand, inadequate forex supply due to non-remittance of crude oil earnings to the CBN, increased capital outflows, and excess liquidity from fiscal activities.
He said the shift to a market-driven exchange rate was intended to create a stable macroeconomic environment and discourage currency hoarding. However, short-term volatilities are attributed to arbitrage and speculation.
“To address exchange rate volatility, a comprehensive strategy has been initiated to enhance liquidity in the FX markets. This includes unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for BDCs, enforcing the Net Open Position limit, and adjusting the remunerable Standing Deposit Facility cap,” he said.
Cardoso explained the exchange rate is determined by the dynamics of supply and demand for a product or service. “In essence, similar to the pricing of cows or cars, the value of the US Dollar in Nigeria is determined by the balance of US Dollars entering the country and the demand for US Dollars among Nigerians. Applying this demand and supply principle, let’s examine how the exchange rate has performed in recent years. The exchange rate in Nigeria has increased/depreciated due to the simultaneous occurrence of two factors: a decline in the supply of US Dollars coinciding with a surge in the demand for US Dollars,” he said.
He noted that in the 1980s and 1990s, the need for US Dollars for their living expenses was minimal. However, recent data shows a significant change. According to UNESCO’s Institute of Statistics, the number of Nigerian students abroad increased from less than 15,000 in 1998 to over 71,000 in 2015. By 2018, this figure had reached 96,702 students, as per the World Bank. Another report projects the number of Nigerian students studying abroad to exceed 100,000 by 2022. Additionally, the UK’s Higher Education Statistic Agency noted a 64 percent increase in Nigerian students studying in the country, rising from 13,020 in the 2019/2020 academic session to 21,305 by the 2020/2021 session.
“My team and I are dedicated to refocusing the Bank by giving primacy to price stability. We also aim to build confidence in the Nigerian economy through the maintenance of stability in consumer prices and the foreign exchange market,” Cardoso said.