Emmanuel OchayiIn a turn of events, the exchange rate between the Nigerian naira and the US dollar has reached an unprecedented low, trading at around N1450/$1 on the black market, marking a 37.6% depreciation in just one month.
The volatility persists despite the Central Bank of Nigeria’s (CBN) efforts to implement new foreign exchange (FX) rules aimed at increasing the dollar supply from commercial banks and stabilizing the naira.
Market analysts attribute the recent decline to a surge in demand for the US dollar since the beginning of January. Businesses replenishing inventory, procuring raw materials, and individuals seeking education overseas have contributed significantly to the heightened demand for foreign exchange.
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The departure of Nigerians residing abroad, particularly noticeable post-holiday season, has also impacted the parallel market.
The CBN, responding to the situation, released a circular addressing suspected cases of excessive foreign currency speculation and hoarding by Nigerian banks. Titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” the circular aims to reduce risks associated with large foreign currency positions held by banks.
In an official statement, the CBN expressed concern over the growing trend of banks holding foreign currency positions, creating an incentive for excessively long foreign currency positions. The new guidelines introduced in the circular focus on prudential requirements to manage risks and prevent potential systemic challenges.
Despite these measures, the official exchange rate fell from N907.1/$1 at the end of December 2023 to an alarming N1,455.59/$1 by the close of January, while the black market experienced a 17.3% depreciation month-to-date.
As the naira faces its lowest point in history against the US dollar, there are growing concerns about the economic ramifications of the ongoing depreciation, raising questions about the effectiveness of the new FX rules and the need for further interventions to stabilize the currencyTop of Form
