Nigeria’s FX market is undergoing a process of price discovery, with investigations revealing that the Naira is currently trading at an average rate of N792.50 at the parallel market, commonly known as the black market.
This comes after the official Investors’ & Exporters’ (I&E) window recorded a closing exchange rate of N762.63 per US dollar, compared to the N792.50/$1 average rate observed in the parallel market.
Traders in various locations, including Ajah, Marina, and Festac, quoted rates ranging from N790 to N795. The current rate represents a 0.94% (N7.5) increase from the rate of N785 traded on Wednesday, indicating a further depreciation of the Naira against the dollar.
This depreciation is primarily attributed to increased demand for dollars from importers and individuals traveling for business, education, and other purposes. According to Aliyu Ibrahim, an FX dealer, the high demand for dollars is driven by importers and those seeking to continue their studies abroad.
Analysts have expressed concern over the FX convergence, as it suggests that the demand for foreign exchange is shifting towards the parallel market, which is smaller in size compared to the investor and exporter window. The increasing discrepancy could be a result of the parallel market’s ability to meet the demand for foreign currency.
Market participants are closely monitoring the investor and exporter window, which is striving to regain its position as the official destination for currency trading.
Meanwhile, the FMDQ Exchange has revised the computation methodologies for its FX rate-fixing products. Going forward, the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) and Investors’ and Exporters’ (I&E) FX Window Spot Rates will be calculated using actual transaction data from the FX market, rather than indicative quotes from market participants. This move aims to enhance transparency and minimize the vulnerability of the rates to manipulation.
Marcel Okeke, former Chief Economist at Zenith Bank, believes that the Naira is losing its role as a store of value, with the dollarization of the Nigerian economy accelerating. Okeke suggests that economic agents prefer to save or denominate their assets in dollars for stability in the value of their savings and assets. He warns that this trend may discourage non-oil exporters from repatriating their earnings, leading to further FX scarcity and the depreciation of the Naira.
However, Dr. Innocent Okwuosa, the 59th President of the Institute of Chartered Accountants of Nigeria (ICAN), disagrees with Okeke’s view. Okwuosa believes that the new administration’s actions will yield short-term gains that will ultimately result in long-term benefits. He emphasizes that the timely appointment of a new Central Bank of Nigeria (CBN) Governor will provide credible long-term direction for monetary policy, bringing certainty, stability, and boosting investor confidence in capital inflows to the country.