In recent news, the Naira, Nigeria’s local currency, faced a significant drop in value. It fell to its lowest point ever, with one US dollar being exchanged for N1,050 on the black market. This decline was due to a high demand for dollars in the parallel market.
To put it in perspective, this drop represents a small decrease of 0.09 percent, as it was trading at N1,049 earlier in the day. The Naira had remained stable at this rate since the previous Friday in the black market.
One of the traders explained that people who needed dollars for various purposes such as business trips, education, medical needs, and tourism turned to street traders because they couldn’t meet their demands through the official market channels.
The Naira’s depreciation against the US dollar was also influenced by a decrease in liquidity in the foreign exchange (FX) market, specifically an 18.72 percent decline in the official market. On Monday, the dollar was quoted at N778.80, a notable increase from the N764.86 quoted on the previous Friday at the Investors’ and Exporters’ (I&E) forex window, which is Nigeria’s official foreign exchange market.
Data from the FMDQ, a financial market platform, revealed that the daily foreign exchange market turnover, which indicates the level of transactions in the market, dropped by 18.72 percent to $43.09 billion on Monday from the $53.02 billion recorded on Friday.
The Central Bank of Nigeria (CBN), responsible for maintaining price stability, has announced its intention to inject liquidity into the Nigerian foreign exchange market through interventions whenever necessary. They also mentioned that as market liquidity improves, these interventions will gradually decrease.
The CBN emphasized its commitment to ensuring that market forces determine exchange rates based on a principle of “Willing Buyer – Willing Seller.” This means that they want exchange rates to be determined by supply and demand in the market, rather than artificial controls.
Furthermore, the CBN emphasized that the FX rates should be referenced from platforms like the CBN website, FMDQ, and other recognized or appointed trading systems. This is to promote transparency, credibility, and fairness in FX rates.
In summary, the Naira has faced a significant decline in value against the US dollar, reaching an all-time low of N1,050 per dollar in the black market. This was driven by a high demand for dollars and a decrease in liquidity in the official FX market. The Central Bank of Nigeria is taking steps to maintain price stability and promote transparency in the foreign exchange market.