Economic Uncertainty: Trader Lose As Naira Appreciates Against The Dollar

The Naira sustained its momentum and closed the week on a high in the parallel market for the first time in a long while.  This shows a decline of over N190 after trading for close to N900 per dollar the previous week.  But the same cannot be said of the official market, where the Naira depreciated 0.10% against the dollar to close at N446.10. 

Why Naira Is Gaining   

Most BDC operators interviewed said there was a drastic drop in demand for dollars, causing them to make huge losses after buying the dollar at over N800 only to be sold at N710.  They have also attributed the drop in demand for the dollar to a rumour that any US dollar bill issued before 2022 would not be acceptable by January 2023 which has consequently led to the appreciation of the Naira against the dollar in the last few days.  This is not unconnected with the theory of demand and supply which helps in determining prices in a free market. The drop in demand for the dollar and the improved supply of the dollar have contributed to moderating the rate.

The CBN redesigning of the Naira, the policies around the Naira and the Economic and Financial Crimes Commission (EFCC) clampdown on BDCs dealers could have also contributed to gains the Naira have recorded.

Also, Unconfirmed and unofficial Sources have alleged that there has been an injection of forex into the market by the CBN as a result of the increase in crude oil production,  1 million barrels per day in crude oil production, which has improved the country’s forex reserves.  For the CBN to sustain the supply of dollars to maintain the rally in the Naira exchange rate, Nigeria’s oil production output will have to continue to rise and stabilize at around 1.5-1.7 million barrels per day.

In an interview with TheCable, Aminu Gwadabe, president of the Association of Bureaux De Change Operators of Nigeria (ABCON), said people have realized that using the dollar as the preferred currency to store money is no longer the best option.

This a claim that we disagree with, not because we hate the Naira but because it is what it is. Until Nigeria ceases to be a consumer nation to become a productive nation, the Naira will remain weak and cannot be a better option for saving money.  

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People were eager to buy dollars and keep them even though they don’t need them to pay school fees or anything. But now, they have burnt their fingers because the exchange rate is not stable. Hoarding dollars is not a good thing to do. As a licensed dealer, you are not supposed to engage in hoarding. You buy, and then you sell immediately. There is also a lot of surveillance within the system. When people buy dollars from BDCs, the traders have to take the Naira to the bank and answer a lot of questions. So, the traders are being cautious.

Aminu Gwadabe

He further advised the Central Bank of Nigeria (CBN) to make efforts to close the gap between the official and parallel market exchange rates.

CBN can inject liquidity to meet legitimate demand for forex. They can also revisit the policy of suspension of FX sales to BDCs. It would go a long way to boosting the value of the local currency.

 Aminu Gwadabe explained.

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Retrospective Check

By mid-November 2021, the Naira appreciated from about N577 per dollar in early October to about N535 a dollar.  Following the Naira exchange rate behaviour in Nigeria, one should not be surprised considering the fact that those who had saved in foreign currency tend to exchange them for Naira for the Christmas holidays as well as the influx of forex from diaspora during the period is expected to positively impact FX rates.

Where do you think the Naira is headed in the coming weeks? Let us know what you think in the comment below

FAQs

What is Naira?

The Naira is the currency of Nigeria. One Naira is divided into 100 Kobos. The Central Bank of Nigeria is the sole issuer of legal tender money throughout the Federal Republic of Nigeria. It controls the volume of money supply in the economy in order to ensure monetary and price stability. The Currency Operations Department of the CBN is in charge of currency management through the design, procurement, distribution, supply, processing, reissue, and disposal or disintegration of banknotes and coins.

How much is 1 Naira in Dollars today?

The United States Dollar is exchanged at N440.96 to Nigerian Naira at the official market and N720 in the parallel market.

What is the full meaning of BDC?

Bureau déchange (BDC) They are financial institutions licenced by the CBN to carry on small-scale foreign exchange business on a stand-alone basis in Nigeria, serving as tools for the management of exchange rates and providing economic data for monetary policy decisions.