Major players sabotaging the naira

The CBN recently said it would not give in to demands for further devaluation of the local currency, despite a record drop in the exchange rate of the Naira against the American dollars in the parallel market.

Amidst the current currency crisis in Africa’s largest economy, CBN Governor Mr. Godwin Emefiele recently said: “It is shocking that even analysts who should be better informed are relying on parallel market rates to argue that our currency is overvalued and therefore needs to be devalued. The situation is terribly unfortunate.

“About 5% of the Nigerian foreign exchange market is represented by the parallel market, which is often the scene of corruption and bribery.” He added.

Following the apex bank’s decision to raise interest rates by 150 basis points to support naira-denominated assets and moderate excessive inflation, the exchange rate between the naira and the US dollar fell to lows record on the black market, trading at a low of N737/$1 on Friday.

“We disagree that a corrupt market should be used to determine the exchange rate. It will not serve as a standard for calculating the value of our money,” concluded Emefiele.

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Pressure on the naira has persisted as many Nigerians rush to find dollars to pay for imports, school fees, medical and other expenses. Because the CBN was unable to meet demand in the legal market, many people were forced to turn to the underground market, which drove prices up.

Nigerian citizens

The naira is highly exposed to manipulation, back and forth and other rent-seeking behavior by rich and poor alike, which has contributed to the historic decline.

In anticipation of a further decline in value, Nigerians from all walks of life are shorting the naira through various strategies that reflect their economic strength and exposure.

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Nigerian citizens are allowed to buy dollars at the official exchange rate for overseas education, personal travel and medical expenses, which are frequently leaked to the black market in order to take advantage of higher market prices. Also, there hasn’t been much supply recently because the central bank has been unable to meet the growing demand from students hoping to start studying abroad in September. Those who cannot wait have been forced to shop in the parallel market.

The demographics of those interested in dollar-denominated accounts have widened from the middle class to include artisans, low-income earners, and students. Independent sources note that the increase in demand for dollar accounts is reducing interest in conventional naira savings accounts, especially among young people.

Political elite

The local currency has recently come under intense pressure against the greenback as Nigeria’s political elite hoard dollars ahead of the upcoming elections scheduled for the first quarter of next year.

Reports reveal that politicians vying for votes are dramatically increasing the demand for cash dollars. The callback demand and supply were even more lopsided as political parties fought over money to distribute to delegates in the presidential primaries held in May and June.

strong dollar

Moreover, at a time when the US economy has clear positives, the value of the dollar is on the rise.

It is currently at its strongest point in two decades and is expected to go from strength to strength. Markets and economies around the world, especially frontier markets like Nigeria, are rocked by the emerging dominance of the dollar.

Since this oil-rich country is still heavily dependent on imports to meet domestic demand for agriculture and energy, a strong dollar means the country would have to spend more on import bills, increasing inflationary pressure.

Low foreign direct investment

About $700 million in foreign direct investment was made in 2021, up from $3.1 billion at the start of President Buhari’s administration in 2015.

Due in part to income transfer difficulties, Nigeria had lost its appeal to foreign investors.

Liquidity in the foreign exchange market is obviously limited. Africa’s most populous nation is heavily dependent on oil imports, but other monetary flows are also needed, including remittances, the majority of which bypass formal channels.

Geopolitical uncertainty

One of the factors is the series of global crises, such as the coronavirus epidemic, supply chain blockages, Russia’s invasion of Ukraine and a number of natural disasters which have put in endangering global food and energy supplies, driving up the dollar costs of Nigeria’s most important countries. necessary imports.

Oil theft and gasoline subsidy

Africa’s largest economy has rationed dollars due to falling oil revenues, which account for more than 80% of its foreign exchange earnings. In addition, crude oil is stolen from the country and gasoline prices are subsidized by oil revenues.

According to Nigeria’s oil regulator, the country lost 141 million barrels of crude oil, or $1 billion in revenue, in the first quarter of 2022. As it provided additional gasoline, Nigeria’s fuel subsidies in August exceeded $1 billion.


The value of the naira is primarily influenced by supply and demand considerations, just like any other currency. The fundamental remedy always lies in the amount of forex liquidity in the system.

The imbalance is produced by the existing market. There may not be stability until the Nigerian foreign exchange market reaches equilibrium. In order for a participant to come and buy and sell at market price like any other transaction, he must liberalize the market or change the value of the naira to a much fairer value while the Nigerian political class deals with the major fiscal issues of the nation.

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