Nigeria’s currency, the naira, has lost 53.4 percent in one year at the official foreign foreign exchange (FX) market due to dollar shortages, despite the policy measures implemented by the Central Bank of Nigeria (CBN).
The naira closed at N1,580.46 on Monday, losing 53.4 percent or N843.84 per dollar, from N736.62 in the corresponding period of September 8, 2023 at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
On daily basis trading, the naira gained by 0.81 or N12.86 as the dollar was quoted at N1,580.46 on Monday compared to N1,593.32 quoted on Friday at NAFEM, according to data from the FMDQ Securities Exchange Limited.
The dollar supplied by the willing buyers and willing sellers declined by 47.8 percent to $197.37 million on Monday from $245.17 million recorded on Friday at the NAFEM.
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At the parallel market, popularly called the black market, the naira lost 43.97 percent as the dollar was sold at the rate of N1,660 on Monday as against N930/$1 sold in the corresponding period of September 8, 2023, data from street traders and some online platforms that collates exchange rates at the unregulated market revealed.
Nigeria’s external reserves, which give the CBN the firepower to defend the naira, have in the last one year increased by 8.5 percent or $2.84 billion to $36.30 billion as of September 4, 2024 from $33.46 billion recorded in September 4, 2023, according to data from the CBN.
Remittances and other inflows have risen over the past year, contributing to an increase in Nigeria’s foreign currency reserves, also known as external reserves. However, despite this boost, the naira continues to lose its value against the dollar.
Yemi Kale, group chief economist/managing director, research & international cooperation at the African Export-Import Bank (Afreximbank), said that the FX value was dependent on demand and supply like any other commodity and the ability of the economy to meet that supply.
As long as FX supply is substantially lower than demand, it will depreciate and continue to do so until supply improves or demand reduces, he said.
In his inaugural speech on May 29, 2023, President Tinubu announced plans for a unified exchange rate, stressing the need for comprehensive reforms in monetary policy. He stated that the central bank must streamline its operations to achieve a single exchange rate, which would shift funds from arbitrage to productive investments in infrastructure, equipment, and jobs that drive the real economy.
On June 14, 2023, the apex bank consolidated all foreign exchange market segments into the Investors and Exporters (I&E) forex window, now NAFEM.
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Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, in September 2023, clarified that rate unification does not mean identical rates across all market segments but aims to reduce the disparities to a minimal range of 5-10 percent. The continued loss in the value of the naira followed scarcity of dollars occasioned by low inflows from oil receipt, foreign capital and Diaspora remittances among others, according to analysts.
Last month, the banking and financial institutions regulator resumed retail dollar sales through the retail Dutch auction system and has sold over $1.7 billion in two auction days.
As part of the reforms in the foreign exchange market, aimed at achieving an appropriate market determined exchange rate for the Naira, the apex bank in February 2024 resumed dollar sales to the Bureau De Change (BDC)s.
In a circular issued by the CBN on February 27, 2024, signed by Hassan Mahmud, director of the trade and exchange department, the bank expressed concern over ongoing price distortions in the retail market, contributing to widening exchange rate discrepancies in the parallel market.
On June 29, 2024, the CBN issued revised guidelines for Deposit Money Banks (DMBs) regarding the deposit of excess foreign currency notes at its Lagos and Abuja branches, aimed to align exchange rates between the parallel and official markets.
Nigeria’s central bank in March 2024 declared that it has successfully resolved all valid foreign exchange backlogs, as pledged by Governor Olayemi Cardoso, addressing inherited claims amounting to $7 billion.
Goldman Sachs has described Naira as the best-performing currency this month (April), saying the currency will exchange below N1,000 per dollar.
Cardoso noted in June 2024 that confidence has returned to the market along with increased inflows. The governor highlighted that the rates have converged, unlike the past scenario where multiple rates existed. “Now we have more or less one rate, which we believe is beneficial. It allows companies to plan effectively and provides a clearer direction for investors in our economy,” Cardoso said.
Read also: CBN sees dwindling finances pushing Nigerians into debt
The CBN has strategically employed various monetary tools to maintain the naira at a willing buyer and willing seller price. These measures include a 800 basis point hike in interest rates to 26.75 percent, clearing $7 billion in FX forwards, banning the use of foreign currency-denominated collaterals for naira loans, selling dollars to BDCs, and licensing an additional 14 IMTOs, among others.
Cardoso emphasised that the CBN is currently in a favorable position and will continue to take all necessary actions to improve the macroeconomic fundamentals affecting the market.
When asked whether the naira will strengthen further by the end of the year or remain stable, Cardoso noted that this would depend on various factors.
Fitch Ratings, an international credit rating agency, has projected that the Nigerian currency will end the year at 1,450 to the dollar.
