The Nigerian naira has reached a record low of N900 against the US dollar on the parallel market, driven by a surge in demand for foreign currency that has outstripped supply. Forex traders are reporting exchange rates as high as N900/$1 for certain transactions, and the peer-to-peer market, involving cryptocurrency traders, has also witnessed rates above this level.
This depreciation comes as the naira has been under pressure in the parallel market due to inadequate forex supply from official sources. Various segments of the economy, including importers, foreign travelers, and speculators, have contributed to the increased demand, leading to exchange rate volatility. The official exchange rate in the Investor and Exporter Window closed at N774.78/$1, while the NAFEX rate was N776.
Since the reunification of the exchange rate windows, the naira has weakened by 16% against the dollar, compared to a depreciation of 2.5% between January 1 and June 14 prior to the unification. The naira’s value declined by 22.9% in the entirety of 2022.
Forex analysts are pointing to a significant backlog of unmet forex demand in the official market, estimated to be between $8 billion and $10 billion. This backlog contributes to the pressure on the parallel market, as buyers turn to alternative sources due to the lack of adequate supply in the official market.
The ongoing imbalance between forex demand and supply underscores the challenges Nigeria faces in maintaining a stable currency and addressing exchange rate volatility.
Opinion:
The record-low exchange rate of N900/$1 for the Nigerian naira on the parallel market highlights the significant challenges Nigeria is facing in managing its currency value. Inadequate forex supply from official sources and increased demand from various sectors of the economy are contributing to this situation. The significant backlog of unmet forex demand in the official market is indicative of a structural issue that needs to be addressed to achieve more stability in the exchange rate.
Such exchange rate volatility can have wide-ranging economic implications, including impacting import costs, inflation rates, and investor confidence. Nigeria’s policymakers need to address the underlying factors contributing to the forex supply-demand imbalance and work towards a more sustainable solution to stabilize the currency and promote economic stability.