Black Market Increases Dollar Rate, As CBN Reduces Naira Circulation

The naira weakened against the dollar on Wednesday in the black market, as the cost of purchasing the United States currency went up by 4.2 per cent.

In the parallel market, the dollar was sold for N760.82 on November 7, indicating N30.82 was added to the price to obtain the foreign currency, considering it went for N730/$1 on Tuesday. 

During the same day in the official market, the naira also depreciated against the dollar, with traders on the Investors & Exporters window raising their asking price up slightly by 0.11 per cent. 

According to report published by the FMDQ, the American greenback requested increased in value to close the official market with N445.83/$1 on Wednesday. 

This is in slight contrast to the N445.80/$1 the dollar was sold for in the Central Bank of Nigeria-backed exchange rate market. Although during trading on the official window, the US currency was priced as high as N452/$1, and as low as N426/$1.

Is CBN’s policy affecting the dollar rate?

Prime Business Africa gathered that the dollar rate slowed in the official market on Wednesday after the USD rose to N445.8/$1 on Tuesday, from N445.33/$1 on Monday, following the central bank’s announcement to reduce naira withdrawal on Auto Teller Machines, Point of Sales (PoS), and over-the-counter. 

The move was made by the central bank to reduce the money in circulation, having complained that most naira notes are outside the bank vault and unaccounted for. 

There have been reports that too many naira notes are chasing few dollars in the two foreign exchange markets in Nigeria, and as a result, raising the value of the USD. 

According to NAN, a professor of Economics at the University of Benin, Benin-City, Hassan Oaikhenan, had stated that the financial regulator should limit the supply of the naira to strengthen the Nigerian currency. 

“The way to go therefore is that now that the denominations are redesigned, it is up to the CBN to as much as possible, limit, control, manage, tighten the quantity of the redesigned currency. 

“Especially the higher denominations in circulation. They have to be properly managed so that at the end of the day, this phenomenon of too much naira chasing few dollars can be addressed. 

“If that is sustainably done, then we will see an improvement of the exchange rate of the naira to the dollar,” Oaikhenan said.