Nigerian currency, the Naira on Thursday sunk to a new low, exchanging for N645 against the U.S. dollar in the parallel market. However, in the official market, the currency continues to be scarce, trading at N430 against the dollar, resulting in a N200 difference.
Listing on Aboki Forex, a digital platform that informs users of the rates at which different currencies are traded on both official and unofficial markets, revealed that the naira, which traded for N620 against the dollar on Monday and N630 on Wednesday, has fallen to N645 as of Thursday afternoon.
Despite the fact that many worldwide currencies have declined in value versus the dollar, the naira, which is the largest economy in Africa and a key reserve currency, has fared the worst.
Recently, Governor of the Central Bank of Nigeria, Godwin Emefiele, issued stern warning to Nigerians converting Naira to the US dollar, threatening to place a post-no-debit on the bank accounts of any customer violating the rule.
READ ALSO: Naira hits N624/$1 at peer-to-peer market as forex scarcity persists
President the Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe attributed the widening exchange rate disparity to acute scarcity of dollars due to the continued suspension of forex sales to BDCs by CBN as well as lack of credibility of exchange rate policy.
Investigation reveals that due to shortages of Dollar and an increase in the number of Nigerians keeping it as a safe haven asset, the Naira has continued to depreciate as a result of end-user demand pressure.
Nigeria’s exchange rate at the black market is determined by several players and middlemen leading to a rapid depreciation of the exchange rate at levels thought to be devoid of market reality.
The void, however, results in a price differential that only causes the naira to depreciate further at a rate that is frequently considered as not reflective or market reality. Each player with their own set of rules determines their own exchange rate.
Some of the merchants contend that there is currently no formula for determining exchange rates, and that the interaction of supply and demand does not contribute to the determination of an effective price.
Ever since the Central Bank of Nigeria’s clampdown of AbokiFX (the website that curates parallel market exchange rate) last year, buyers and sellers of forex have struggled to find a reference point for what the actual exchange rate should be.
According to certain BDC operators, there is a significant arbitrage in the market that has cost numerous traders millions of naira in losses because there is no transparency in how these rates are set.
READ ALSO: Naira appreciates at official market against Dollar
As the CBN halted foreign exchange sales through the bureau de change last year, supply scarcity exacerbated Naira’s weakness. However, market participants argue that the demand pressure is a reflection of a weak supply in other segments of the FX market.
Findings reveal that there are some black-market players who deliberately create shortages of foreign exchange so that people will need to buy from them at a higher rate.
According to an anonymous official source, the underground market exposes several Nigerian citizens to a number of drawbacks, including fraud risk, violence, and theft arbitrarily.