Nigeria’s Currency Falls to Record Low Against the USD

A day after posting a meager gain in the spot market, the naira lost a substantial amount of ground versus the US dollar.

The naira began at N427.30 and finished at N431.00 to the dollar, according to statistics released on the FMDQ website, where forex is legally transacted.

This is a depreciation of N3.87, or 0.90 percent, from the previous session’s exchange rate of N427.17. Before ending at N431.00 per $1 on Monday’s second business day, the currency fluctuated to an intraday high of N414.00 and a low of N444.00.

Investors and exporters window Nafex in Lagos reported that the Naira had fallen 1.6 percent against the USD to $426.26 as of 3.30 p.m. local time. In Africa’s largest economy, Nafex is considered the official market for foreign currency transactions.

Even if oil prices in Africa’s biggest crude producer have increased, the pressure on foreign reserves has caused Nigeria’s central bank to reduce dollar sales, resulting in a shortage of the greenback on the market.

What are the reasons behind the fall of Naira?

The naira’s continued depreciation is a sign that the monetary authorities’ efforts have failed. Otherwise, the troubled currency would have received at least a temporary reprieve.

Due to a lack of focus on core causes and the inappropriate use of corrective measures, the Nigerian naira’s current plight is akin to a disease that seeks to kill its victim. If a patient is misdiagnosed and receives improper therapy, he or she is at risk of death.

The rapid devaluation of the naira in Nigeria’s economy has created widespread anxiety among the country’s residents. This is especially true in the case of investors that operate in the financial markets. Those investors who were trading Forex in Nigeria, are now recommended to start FX trading in south africa, as this country is more stabilized and is not at the risk of defaulting. The black market exchange rate has depreciated from N505/$1 to N570/$1 after the Central Bank of Nigeria (CBN) restricted the selling of foreign money to Bureau de Change (BDC) operators. Earlier this year, the currency declined to over N500 to the dollar, the most it has been since early 2017. At roughly N365 to $1, it evened out when the Central Bank began a program to inject money into the economy.

During my time at university in the 1980s, we took a subject called “The Structure of Nigerian Economy.” Nigeria’s economy has had a structure since its independence in 1960. Agriculture and industrial output expanded after the civil war ended in 1970, reviving the economy.

Most recently, the Central Bank of Nigeria (CBN) restricted access to foreign currency for Bureau de Change operators, a practice that has been in place for years and seems to be unique to Nigeria.

A 150 basis point hike in the benchmark interest rate was made in May by the Central Bank in order to reduce increasing inflationary pressures and stimulate foreign currency (FX) inflows into the economy.

It’s not yet clear whether the apex bank’s intervention would have any effect on currency exchange rates, which have remained volatile. While this was going on, the Central Bank reported an increase in the external reserve of $620 million in June 2022 due to contributions from non-oil sources.

What does the future hold for Naira?

Despite the increase in foreign reserves, the Naira is expected to decline further by the end of 2022. According to Fitch Solutions’ Nigeria Country Risk assessment, this is expected to happen. In January, Reserves were at USD36.4 billion, but by July, they had fallen to USD33.3 billion because of growing imports and sluggish oil production, according to the study (88.7 percent of export earnings in 2020).

The naira is expected to continue depreciating, while the country’s GDP is expected to expand by about 3% in 2022, according to experts and financial analysts.

They exchanged words at a webinar hosted by Blue Talks Enterprise Banking. An expert from Standard Bank Group’s Equity Research in West Africa predicted that Nigeria’s currency will lose value this year as he spoke during an online webinar.

Kingsley Moghalu, a former deputy governor of the Central Bank of Nigeria, has warned that Nigeria’s currency issue would only become worse if the nation fails to diversify and continues to depend on its crude oil-driven mono-product economy.

If the Nigerian economy is thriving and competitive in the global marketplace, it will have an impact on its currency, Mr. Moghalu said in a statement posted on his official Facebook page.

The former presidential candidate emphasized that diversification of the economy is not by selling cashews or yam tubers, but by embracing value-added commodities that are the results of significant engineering and technologies.