ENUGU, Nigeria (VOICE OF NAIJA) – The value of the naira has been further impacted by the growing disparity between the demand and supply of dollars in both banks and the parallel market, Punch reports.
Over a span of fewer than three weeks, the naira has experienced a decrease of N100, dropping from 860/$ to 960/$ in the parallel market by the end of the week.
Before the Central Bank of Nigeria (CBN) implemented the free float of the naira against global currencies in June, the naira had maintained a trading rate of 471/$ at the Investor & Exporter window.
However, just a day after the naira was allowed to float freely, its value increased to 664/$, marking a significant change.
Subsequently, the naira, which had previously exhibited only slight fluctuations, began to exhibit substantial volatility in the black market.
Last week, the parallel market witnessed the naira surpass the N900/dollar threshold, but it soon dropped to 925/dollar in Lagos.
READ ALSO: Naira Crashes To N950/$ At Parallel Market
On Friday, the naira attained a peak of 799/$ before settling at 740.60/$ at the I&E forex window. Conversely, at the parallel market, the naira concluded at 930/dollar in Lagos and 960/$ in Abuja.
The situation has been exacerbated by a shortage of dollars in banks, with multiple financial institutions expressing concerns about their inability to meet customer demand for the greenback.
Currency dealers in the parallel market have also voiced similar concerns about the lack of available dollars.
Bank officials highlighted that the removal of cash deposit limits on domiciliary accounts by the CBN had led to a significant inflow of funds through banks.
However, despite this influx, the demand for dollars continued to surpass its supply due to various factors such as imports, PTA (Personal Travel Allowance), and BTA (Business Travel Allowance).
A lender’s official who spoke anonymously emphasized that many Nigerians were still hoarding dollars, indicating a lack of trust in the policy changes.
Furthermore, banks have encountered challenges in consistently obtaining forex supply from the CBN as they did in the past.
In light of these circumstances, the President of the Association of Bureau De Change Operators of Nigeria, Aminu Gwadabe, highlighted that the FX market’s liquidity shortage was a key factor in the naira’s vulnerability to speculation.
READ ALSO: Naira Crashes Against Dollar At Investors, Exporters Window
Gwadabe also underscored that the shift of demand from the I&E window to the parallel market was due to dwindling supplies in the former, creating a more volatile environment.
He noted that the banking sector’s limitation on financing visible letters of credit in favor of more prevalent requests like PTA and school fees had intensified pressure on the parallel market.
As a possible solution, Gwadabe advocated for stable exchange rates, along with addressing illegal economic practices like hoarding and panic buying.
He expressed a desire for the Association to collaborate with the CBN and the Federal Government to foster naira recovery through comprehensive dialogue and engagement.
Gwadabe also suggested a review of the financial architecture to incorporate BDCs (Bureau De Change) into the harmonized markets.
Additionally, he called for the creation of a conducive environment and favorable policies by both monetary and fiscal authorities.