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The growing disparity between the demand and availability of the US dollar in both banks and the parallel market has led to further depreciation of the Nigerian naira, according to an investigation by The PUNCH.
In a span of less than three weeks, the naira has experienced a significant loss of N100, dropping from 860/$ to 960/$ at the parallel market by the end of the week.
Before the Central Bank of Nigeria allowed the naira to freely float against global currencies in June, it was trading at 471/$ at the Investor & Exporter window. However, following the central bank’s decision, the naira initially strengthened to 664/$ but soon became unstable, particularly in the black market.
After surpassing the N900/dollar threshold in the parallel market the previous week, the local currency further declined to 925/dollar in Lagos.
On Friday, the naira reached its peak of 799/$ before settling at 740.60/$ at the I&E forex window. However, in the parallel market, the naira closed at 930/dollar in Lagos and 960/$ in Abuja.
This situation has arisen due to a shortage of dollars in banks, with many financial institutions unable to meet the high demand from customers. Currency dealers in the parallel market are also facing a similar scarcity.
The removal of cash deposit limits on domiciliary accounts by the Central Bank in June has resulted in the repatriation of funds through banks, causing the demand for the dollar to outstrip its supply.
An anonymous official from a bank explained that the combination of reduced forex supply from the Central Bank and increased demand for imports, Personal Travel Allowance (PTA), and Business Travel Allowance (BTA) has created an imbalance.
Furthermore, Aminu Gwadabe, the President of the Association of Bureau De Change Operators of Nigeria, highlighted that liquidity shortages in the foreign exchange market have made the naira vulnerable to speculative activities.
Gwadabe emphasized that addressing the liquidity squeeze and fostering a stable exchange rate require collaboration between the apex bank, the government, and relevant stakeholders. He also suggested incorporating Bureau De Change operators into the harmonized market and implementing conducive policies for financial stability.
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