The naira’s value has gotten worse as a result of the growing disparity between the supply and demand of dollars in banks and on the black market, according to research.
The value of the naira decreased from 860 to 960 per dollar at the parallel market as of Friday, losing N100 in less than three weeks.
The naira was trading at 471/$ in the Investor & Exporter window prior to the Central Bank of Nigeria allowing the free float of the naira against other world currencies in June.
The native currency was floated on June 12, but the next day, on June 13, the naira increased to 664/$.
The naira, which had been trading closely in both the official I&E window and the parallel market, soon started to see significant volatility in the black market, though.
The local currency fell to N925/dollar in Lagos last week after breaking the N900/dollar threshold at the parallel market.
At the I&E FX window, the naira peaked on Friday at 799 to the dollar before falling to 740.60. Naira finished at 930 to the dollar in Lagos and 960 to the dollar in Abuja, respectively, on the parallel market.
The news broke while the financial sector was being plagued by a dollar shortage, with some institutions lamenting their inability to meet customer demand.
The lack of dollars was another complaint made by currency merchants at the parallel market.
According to bank officials, money was being repatriated through banks as a result of the CBN’s June lifting of the cash deposit cap on domestic accounts.
He claimed that as a result, the dollar was in substantially higher demand than it was in supply.
“Some of the dollars are being repatriated through the banks but the demand is still higher than the supply because everyone is still sourcing for dollar for imports, PTA, BTA, and others,” an official of a lender who spoke on the condition of anonymity because he was not authorised to speak on the subject said.
“Due to their lack of confidence in the policies, Nigerians continue to hoard dollars and foreign exchange. According to him, banks no longer receive regular FX supplies from the CBN.
Also, a tier-1 bank official who requested anonymity stated, “Before, the banks used to get dollars from the CBN every week, but now, it has substantially decreased; we have not been getting again. Wherever there is currency, banks are sourcing it. Not enough is in the banks. For several weeks, the CBN has not been providing us with any supplies.
In an interview with our correspondent, Aminu Gwadabe, the president of the Association of Bureau De Change Operators of Nigeria, stated that the FX market’s lack of liquidity had continued to see a lot of speculators attacking the naira.
According to him, the demand was pushed to the parallel market, where volatility and spikes were more common due to the I&E window’s diminishing supplies. Deficiencies in liquidity affect the overall currency market.
As a result of the lack of supplies, “the banks are reducing their available position for the financing of visible letters of credit and abandoning the invisible request like PTA, school fees, and medical expenses of their clients and unintentionally adding more pressure in the parallel market.”
“As it is, most licenced BDCs have lost their clients to the parallel and unregulated space with no regulation and standardisation due to their demand for KYC requirement,” he continued. Due to our exclusion from the harmonised market, it is difficult for the majority of our members.
Gwadabe offered suggestions for how to fix the problem, advising Nigerians to strive for a stable exchange rate free of unethical economic practises including arbitrage, hoarding, and panic purchasing.
“ABCON is desirous to partner with the apex bank and the Federal Government for an elaborate dialogue and engagement to champion paths to naira recovery,” he said.
BDCs should be included in the harmonised markets, he continued, thus the financial architecture needs to be overhauled.
He argued that supportive environments and policies should be developed by the monetary and fiscal authorities.
