The Nigerian economy continues to grapple with the widening disparity between the demand and supply of the US dollar, as evidenced by the decline in the value of the naira.
A recent investigation conducted has unveiled the exacerbating gap between the two currencies, shedding light on the multifaceted challenges faced by both financial institutions and the general public.
Over a span of less than three weeks, the naira has experienced a significant depreciation, losing a staggering N100 in value.
This slide in value saw the naira plummet from an exchange rate of 860/$ to a disconcerting 960/$ at the parallel market by the end of the past week.
This rapid decline follows a trajectory of volatility that has been seen in recent months since the Central Bank of Nigeria introduced a policy allowing the free float of the naira against other global currencies in June.
Prior to this policy change, the naira had been holding steady at an exchange rate of 471/$ at the Investor & Exporter (I&E) window.
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However, immediately after the Central Bank’s announcement, the naira experienced a surge, soaring to 664/$ the very next day.
Sadly, this brief moment of stability gave way to considerable turbulence, particularly in the parallel market where volatility became more pronounced.
Naira Falls Further against the dollar
The situation reached a tipping point when the naira crossed the N900/dollar threshold at the parallel market, leaving the local currency struggling at 925/dollar in Lagos.
At the same time, the naira’s value varied drastically depending on the market.
While at the I&E forex window, the naira managed to reach a peak of 799/$ before settling at 740.60/$ at the end of the trading day, the parallel market in Lagos saw it close at 930/dollar.
An even higher exchange rate of 960/$ was observed in Abuja’s parallel market.
An acute dollar shortage has led to difficulties for both banks and currency dealers.
Several banks have reported being unable to meet their customers’ demands, while currency dealers in the parallel market have encountered similar challenges.
A significant factor worsening this issue is the Central Bank’s decision to remove cash deposit limits on domiciliary accounts, resulting in a repatriation of funds through banks.
This has led to an overwhelming demand for dollars that is surpassing the available supply.
Amidst this turmoil, there is a growing sentiment of mistrust among Nigerians toward existing policies.
Many individuals and businesses have resorted to hoarding dollars as they remain uncertain about the stability of the currency.
Also, concerns have been raised about the dwindling supplies in the I&E window, which has caused a shift in demand to the parallel market, where volatility is more pronounced.
Aminu Gwadabe Chats with Correspondence
Aminu Gwadabe, President of the Association of Bureau De Change Operators of Nigeria, has expressed concerns over the liquidity squeeze in the foreign exchange market, attributing the naira’s depreciation to speculative activities.
Gwadabe notes that the scarcity of supply has forced banks to limit their financing of visible letters of credit, putting more pressure on the parallel market.
Gwadabe proposes a collaborative effort between the government, the apex bank, and financial institutions to stabilize the exchange rate and curb illegal economic behaviors such as hoarding and panic buying.
He advocates for a review of the financial architecture to include Bureau De Change operators in the harmonized market and emphasizes the need for an enabling environment with friendly policies.
