Fakoyejo OlalekanIn the second week of November, the naira gained significantly against the United States dollar (USD) in black market after a free fall in last week of October and first week of November.
The naira had appreciated by 25.2 percent, handing Bureau De Change operators and other traders a loss on other investments, considering the dollar had sold above N800 in the first week of November, rising to N910/$1 during the weekend of the same week.
BDC operators and other traders, who had bought dollars between October 31 and November 5 at the range of N800 and N900, experienced depreciation in the USD they held last week, as the naira gained N230 in value, knocking the exchange rate of both currencies down to N680 on November 11, from the N910 the American greenback sold for in the weekend before.
We therefore serve you 6 reasons why the naira showed some significant gains and losses against the dollar, all in just two weeks:
Dollar rebounded against the naira this week
The parallel market, this week, has seen the dollar rise in value against the Nigerian currency, closing Monday with N770/$1, and trading at N790 as of Wednesday.
Prime Business Africa reports that the naira has depreciated by -16.1 percent in the third week of this month, as Bureau De Change operators raise their asking price by N110 in five days after suffering significant losses.
Why dollar crashed against the naira
1. EFCC raid on BDC: The number of Bureau De Change centers in operation dropped in the last week of October and the first week of November after a series of raids by the Economic and Financial Crimes Commission (EFCC).
Some BDC operators were forced into hiding by the raids, with about 90 arrested by operatives of the EFCC. The raid dissuaded persons that obtained the naira illegally from patronising the black market to exchange it for USD, as such, demand for the dollar dropped, while the value of the naira jumped.
2. CBN defends naira: The Central Bank of Nigeria (CBN) moved to increase the availability of the dollar, disbursing $1.8 billion from the foreign reserves between September 1, 2022, and November 11, 2022.
Note that scarcity had been the catalyst for the rise of the dollar, with demand overshooting supply; yet, the central bank making more USD available aided the value of the naira.
Although the CBN no longer provides dollars to the black market, there have been reports that persons or traders obtain American currency in the official market and sell it in the black market.
3. Change of dollar rumour: A report had spread online that the United States government plans to phase out the current dollar in circulation, and disburse new USD notes into the economy.
The report was false, but it compelled legal and illegal hoarders of American legal tender to bring out the money in exchange for the naira, to avoid losing the money.
Why Naira Crashes
4. Redesigned naira: The disclosure by the Central Bank of Nigeria (CBN) that it will release redesigned naira notes in December and discontinue usage of old currency in January fueled desperate demand for the dollar.
Persons hoarding naira obtained illegally were reportedly dumping the Nigerian currency in the black market in exchange for the USD, in a bid to avoid losing the money to the change in currency.
As a result, the demand for the dollar drove the value of the American greenback up, causing a dip in the value of the naira in the parallel market.
5. Scarcity of USD: The BDC market is overwhelmed by demands amid the scarcity of dollars. Since the central bank cut ties with the black market, they have had to source 100 percent of the forex.
The CBN allocated $5.7 billion to Bureau De Change operators annually before it halted the disbursement last year. Weekly, $20,000 is allocated to each of the 5,500 BDCs.
CBN’s suspension met the BDCs unprepared, and they have not recovered or been able to find a constant replacement for the significant amount the central bank accounted for.
6. Drop in foreign reserves: As the central bank continues to defend the naira, the foreign reserves deplete, as major sources of Nigeria’s forex, the oil and gas industry, as well as the aviation sector are struggling.
Prime Business Africa reported two weeks ago that Nigeria loses $63 million in oil revenue daily and $1.9 billion monthly to oil thieves. Also, the 2023 oil revenue projection has shown that the country will lose N1.24 trillion.
It was learnt that FG estimates N1.92 trillion for next year’s oil revenue. This is below the N3.16 trillion President Muhammadu Buhari projected for oil revenue in 2022.
Meanwhile, Nigerian airlines are facing challenges flying to other countries due to restrictions by foreign countries. CBN governor, Godwin Emefiele, had complained about this, stating that allowing Nigerian airlines to land more in their countries will enable the Nigerian firms to earn in foreign exchange, thereby, increasing the foreign reserves.
“There are situations where some countries have their airlines land up to 21 times in Nigeria, yet when a Nigerian airline makes a similar request, it is turned down or not treated fairly or with the urgency that such deserves.” Emefiele had stated in September.
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