Nigerian Naira Slides Further to N930/$1 as Dollar Scarcity Intensifies

On Thursday, August 10, 2023, the Nigerian naira experienced a sharp drop to a new low of N930/$1 in the parallel market. 

This decline is attributed to the overwhelming demand for the US dollar by importers and other users, which far exceeds the available supply.

This situation is worsened by the apparent lack of intervention from the Central Bank of Nigeria (CBN) and the absence of price control measures. Market participants, speaking to Nairametrics, reported rates as high as N930/$1 compared to Wednesday's rate of N910/$1.

They continue to express frustration over the shortage of dollars amid growing demand.

These market players revealed that they buy at N920/$1 and sell at N930/$1, resulting in a profit margin of at least N10.

Since the beginning of August, the naira has weakened by 18.7% in the parallel market. In July 2023 alone, the exchange rate had weakened by 11.5%.

Earlier this week, Nairametrics reported that the exchange rate had surpassed N900/$1 for the first time, marking an all-time low. 

The combination of high demand and reluctance among some to sell their forex holdings has further escalated pressure on the exchange rate, leading to higher bidding prices.

Exchange rates for the British Pound and Euro also saw an increase, reaching as high as N1,175 and N975 against the dollar, respectively.

Concerns from BDC Operators: 

In an interview, Alhaji Aminu Gwadebe, the President of the Association of Bureau De Change Operators of Nigeria (ABCON), expressed the need to restrict the cryptocurrency platform Binance due to its increasing influence on determining exchange rates.

Gwadebe highlighted the competition posed by Binance and stressed the importance of local efforts to counteract its influence.

Dollar Scarcity's Widespread Impact: 

A currency trader identified the scarcity of the US dollar as a primary driver behind the soaring exchange rate. Even commercial banks are grappling with a lack of foreign exchange, forcing many importers and users to seek foreign currency from the parallel market. 

The trader emphasized the shortage of supply and the significant demand, as commercial banks struggle to secure allocations from the CBN.

Disparity Between Markets: 

Despite the I&E window closing at N782.38/$1 on August 9th, the discrepancy between official and parallel market rates remains substantial. The recent depreciation of the exchange rate by 3.18% at the I&E window hasn't closed the gap, which stands at N147.62.

 This contrast contradicts expectations that the unification of the naira would narrow the divide.

Analysts attribute the continued patronage of the black market to pent-up demand. Importers are still facing challenges in meeting their foreign exchange needs through the official market, particularly given the average daily turnover of $80 million in the I&E window.