The nation’s currency, the Naira, experienced a historic low on Wednesday in the parallel market, with the unofficial exchange rate reaching an unprecedented N1065 to the US dollar.
On Tuesday, the Naira closed at N1060 to the dollar on the unofficial market, driven by a shortage of dollars, leading to a rapid depreciation of the currency.
Additionally, the Naira weakened by 8.9 percent to N848.12 against the dollar in the official Investors and Exporters (I&E) forex market on Tuesday, according to data from FMDQ.
Foreign exchange trades took place within the range of N700 to N981 per dollar, with the dollar’s trading volume surging to $133 million, according to an investment note by the Lagos-based investment banking firm Chapel Hill.
The Central Bank of Nigeria (CBN) had relaxed foreign exchange controls in mid-June following criticism of monetary policy measures by President Bola Tinubu and a pledge to end the multiple exchange rate regime.
The official rate briefly aligned with the parallel market, plunging 40 percent, but the spread began to widen again. Until Tuesday, the official rate remained near N800 to the dollar, while the street rate surpassed N1,000 to a dollar.
Foreign exchange operators attributed the Naira’s depreciation to persistent illiquidity in the market in the absence of central bank intervention. The widening premium between the official rate and the black market is a sign that the exchange rate has not found a clearing price.
The Chairman of the Association of Bureau de Change Operators in Nigeria (ABCON), Aminu Gwadabe, explained that the Naira’s rapid devaluation is due to significant liquidity driving up demand for unavailable dollars in the market. He also pointed to uncertainties, loss of public and international confidence in the economy, rising inflation, and a low interbank market interest rate, which have reduced the appeal for alternative investments.
Gwadabe recommended abolishing the I&E window and allowing willing buyers and sellers to dictate price mechanisms with legislative backing.
