The value of the naira has continued to drop as the gap between the demand for and supply of dollars in banks and on the underground market has grown.
The naira has dropped from 860 to 960 on the underground market, which means it has lost N100 in less than three weeks.
Before the Central Bank of Nigeria let the naira move freely against other world currencies in June, it was worth $471 per naira at the Investor and Exporter window.
But on June 13, a day after the government let the local currency run, the naira went up to 664/$.
But the naira, which was traded with a small difference at both the official I&E window and the secondary market, soon became very unstable on the black market.
Last week, the local currency crossed the N900/$1 ceiling on the underground market. This week, it fell to N925, or $1, in Lagos.
At the I&E forex market, the naira went as high as 799/$ on Friday before ending the day at 740.60/$. But on the parallel market, the naira ended at 930 naira per dollar in Lagos and 960 naira per dollar in Abuja.
The change happened at the same time that banks were complaining that they didn’t have enough dollars to meet user needs.
On the secondary market, money changers also said that there weren’t enough dollars.
Officials at the banks said that the CBN’s decision in June to remove caps on cash deposits to domiciliary accounts led to the repatriation of funds through the banks.
So, he said, the demand for the dollar was much higher than the supply, by a large amount.
“Some of the dollars are being sent home through the banks, but the demand is still higher than the supply because everyone is still looking for dollars for imports, PTA, BTA, and others,” an official of a lender said on the condition of anonymity because he was not authorized to talk about the issue.
“Nigerians still save dollars, and customers still save foreign exchange because they don’t trust the policy. The CBN isn’t giving banks as much foreign currency as it used to,” he said.
Also, a tier-1 bank employee who asked not to be named said, “Before, the banks used to get a dollar from the CBN every week, but now it has gone down a lot, and we haven’t been getting anymore. Banks look for foreign currency everywhere. There isn’t enough in the banks. We haven’t gotten anything from the CBN in weeks.”
In a conversation with our reporter, Aminu Gwadabe, President of the Association of Bureau De Change Operators of Nigeria, said that speculators have continued to hit the naira hard because of the lack of liquidity in the FX market.
He said, “The I&E window’s dwindling supply moved demand to the parallel market, where volatility and spikes are most common.” The forex market as a whole is suffering from a lack of liquidity.
“Because there aren’t enough supplies, the banks are limiting their ability to finance visible letters of credit and dropping their clients’ invisible requests for things like PTA, school fees, and medicals. This is putting more pressure on the parallel market.”
He also said, “As it stands, most licensed BDCs have lost their clients to the parallel, undocumented space where there are no rules or standards.” This is because KYC is a requirement for them. Most of our members are having a hard time because they can’t sell on the unified market.
Gwadabe said that Nigerians should try to have a stable exchange rate without any illegal economic activities like arbitrage, holding, and panic buying.
“ABCON wants to work with the apex bank and the Federal Government to have a deep conversation and work together to find ways for the naira to recover,” he said.
He also said that the financial design should be changed so that BDCs can be part of the synchronized markets.
He said that monetary and fiscal officials should make policies and create an environment that is helpful.