Nigerian Naira Plunges to Record Low of N925/$1 on Parallel Market Amid Supply Scarcity
The Nigerian Naira has spiraled to an unprecedented low of N925 against the US Dollar on the parallel market, largely due to a stark mismatch between demand and supply for foreign currency. This comes in the wake of the government’s recent liberalization of the foreign exchange regime, signaling a departure from the previous administration’s approach.
The prior practice of maintaining separate official and parallel exchange rates was widely criticized for its detrimental effects on the economy and its tendency to favor a select few. Despite efforts to unify the exchange rates, the Naira’s value has persistently dwindled on the parallel market. This depreciation is predominantly attributed to a scarcity of supply, creating a scenario where more buyers vie for limited available foreign currency.
The parallel market rate has surged considerably higher than the official rate in the Investor and Exporter Window. This imbalance reveals a pronounced disparity and raises concerns about the market’s stability. The Association of Bureaux De Change Operators of Nigeria (ABCON) has called for a ban on Binance’s operations in the country, citing its alleged impact on exchange rates.
The Central Bank of Nigeria (CBN) is anticipating remittances from the Nigerian National Petroleum Company Limited (NNPCL) after the removal of petrol subsidies, which could potentially provide a reprieve to the weakening Naira.
Opinion: Sustaining the Nigerian Naira Amidst Ongoing Depreciation
The persistent depreciation of the Naira, culminating in an all-time low against the US Dollar, mirrors the underlying challenges within Nigeria’s foreign exchange market. While the unification of exchange rates aimed to rectify the issues stemming from multiple rates, the current situation highlights the urgency of addressing supply constraints.
The substantial gap between parallel and official market rates underscores the pressing need for substantial foreign currency supply and well-crafted policy interventions to curb speculative trading practices. The call to ban Binance operations underscores the concerns surrounding the exchange’s influence on market dynamics. To achieve Naira stability, the Nigerian government must redouble efforts to diversify foreign exchange earnings beyond the oil sector, enhance transparency, and bolster investor confidence.