The value of the naira is grappling with turmoil due to a widening gap between the demand and supply of dollars. Recent findings by FindWhosabi reveal that this imbalance has led to a swift decline in the naira’s value, with a loss of N100 in under three weeks, sliding from 860/$ to 960/$ in the parallel market as of the last Friday.
Prior to the Central Bank of Nigeria’s decision to allow the free float of the naira against global currencies in June, it traded at 471/$ at the Investor & Exporter window. Following the floatation, the naira surged to 664/$, but its stability eroded quickly, especially in the black market.
At present, the naira faces significant volatility in the parallel market. It recently crossed the N900/$ mark and even reached 925/$ in Lagos. Meanwhile, at the I&E forex window, it surged to 799/$ before settling at 740.60/$, whereas in the parallel market, it closed at 930/$ in Lagos and 960/$ in Abuja.
The shortage of dollars is impacting both banks and currency dealers. The removal of cash deposit limits on domiciliary accounts in June resulted in fund repatriation through banks, causing a surge in dollar demand that far exceeds supply. This situation is intensified by cautious customer behavior due to policy uncertainties.
Bank officials have expressed concerns about reduced forex supply from the CBN, which used to be consistent. Aminu Gwadabe, the president of the Association of Bureau De Change Operators of Nigeria, attributes the liquidity shortage to the shift from the I&E window to the parallel market, which is straining the naira. Gwadabe suggests that a stable exchange rate can be achieved by eliminating illegal economic behaviors like hoarding and panic buying, alongside revising the financial architecture to include BDCs in harmonized markets.
In these challenging times, collaboration between monetary and fiscal authorities, creating a conducive environment, and enacting favorable policies are essential steps to support the recovery of the naira.