Nigerian Naira Plummets to Record Low Amid Surging Demand for US Dollars

The Nigerian naira has plummeted to an all-time low, driven by surging foreign currency demand, posing challenges to economic stability. The Central Bank of Nigeria is taking measures to stabilize the forex market and address the currency crisis.

Nasiru Eneji Abdulrasheed
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Nigerian Naira Plummets to Record Low Amid Surging Demand for US Dollars

Nigerian Naira Plummets to Record Low Amid Surging Demand for US Dollars

The Nigerian naira has fallen to an all-time low of 1,420 per US dollar on the black market, driven by a surge in demand for foreign currency. The naira's value has plunged by 19.64% against the US dollar in just two weeks, compared to the rate of 1,125 naira per dollar quoted on April 12, 2024.

The depreciation has also been reflected in the Nigerian Autonomous Foreign Exchange Market (NAFEM), where the naira has weakened to 1,308.52 per dollar, representing a 12.69% decline since April 12. Analysts attribute the naira's rapid decline to a lack of foreign portfolio investment due to geopolitical tensions and a stronger US dollar.

Why this matters: The naira's sharp depreciation and high inflation pose significant challenges to Nigeria's economic stability. The Central Bank of Nigeria (CBN) and the government may need to revisit their monetary and fiscal policies to address the currency crisis and attract sustainable foreign investments.

In an effort to stabilize the foreign exchange market, the CBN has approved the allocation of $15.83 million to 1,583 Bureau De Change (BDC) operators, with each BDC receiving $10,000 at a rate of 1,021 naira per US dollar. The CBN has also mandated that BDCs sell the allocated foreign currency to eligible end-users at a spread not exceeding 1.5% above the purchase price, aiming to promote transparency and fair pricing in the foreign exchange market.

Despite these measures, traders remain cautious due to concerns that the CBN might take drastic steps to stabilize the dollar, which is driving high profit margins. The naira has lost 26.2% of its value in the past two weeks compared to the April 12, 2023 rate of 1,125 per dollar on the parallel market.

The rapid depreciation of the naira has led to significant foreign exchange losses for major Nigerian companies, totaling around 1.8 trillion naira in the financial year 2023. These losses were triggered by the devaluation of the naira following the Tinubu administration's forex unification policy launched in June 2023.

"The CBN is increasing dollar supplies through Bureau De Change operators to minimize pressure on the foreign exchange market and lower imported inflation," a currency trader stated, highlighting the central bank's efforts to stabilize the naira. The CBN has also cleared over $136 million in outstanding airline obligations, which has helped boost confidence in the forex market.

Key Takeaways

  • Nigerian naira hits all-time low of 1,420 per USD on black market, 19.64% decline in 2 weeks.
  • Naira weakens to 1,308.52 per USD in Autonomous FX Market, 12.69% decline since April 12, 2024.
  • Naira depreciation and high inflation pose challenges to Nigeria's economic stability, requiring policy review.
  • CBN allocates $15.83M to BDCs to stabilize FX market, mandates fair pricing to promote transparency.
  • Naira lost 26.2% of value in 2 weeks, leading to $1.8 trillion FX losses for major Nigerian firms.