The Nigerian Naira recently hit a historic low against the US dollar with an exchange rate of NGN860:USD1, due to a shortage of foreign exchange in the official market and an increase in forex demand. Consequently, the Central Bank of Nigeria (CBN) announced the cancellation of licenses for about 2,700 currency exchange offices.
The Disparity Between Official and Parallel Market Rates Expands
The Nigerian Naira reached its new lowest point of NGN860 per dollar in the parallel market on July 20. This decline has further increased the discrepancy between the import and export weighted average rate (NGN773:USD1) and the rate available in the black market.
Reuters reported that this drop in value followed the CBN’s decision to let the Naira float, a policy change that was made shortly after Bola Ahmed Tinubu took office as the president of Nigeria. It’s also noted that the depreciation of the Naira occurred just a week prior to the next CBN monetary policy committee meeting.
Licenses of Almost 2,700 Currency Exchanges Revoked
CryptokenTop.com News reported that the CBN initially devalued the Naira by 30% before letting it depreciate progressively against the US dollar and other major currencies. Some Nigerian financial experts have suggested that the central bank’s end goal is to unify the parallel and official exchange rates.
Nevertheless, the lack of US dollars in the official market and the rising demand for forex has put the Naira under increasing pressure.
In response, the CBN declared on July 20 that it had canceled the licenses of 2,698 currency exchanges. A local report indicates that this measure was taken by the central bank in an effort to control the impact of these exchanges on the Naira-to-dollar exchange rate.
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Frequently Asked Questions (FAQs) about Naira depreciation
Why did the Nigerian Naira hit a record low against the US dollar?
The Nigerian Naira hit a record low due to a shortage of foreign exchange in the official market and an increase in forex demand. This was further affected by the Central Bank of Nigeria’s decision to let the Naira float.
What was the Central Bank of Nigeria’s response to the Naira’s depreciation?
In response to the Naira’s depreciation, the Central Bank of Nigeria revoked the licenses of nearly 2,700 currency exchanges. This measure was aimed at controlling the impact of these exchanges on the Naira-to-dollar exchange rate.
What is the import and export weighted average rate?
The import and export weighted average rate is an exchange rate that reflects the cost of imported goods and the value of exported goods. In the context of this news, it is used to compare against the rate provided by the black market.
Why is the Central Bank of Nigeria aiming to unify the parallel and official exchange rates?
The unification of the parallel and official exchange rates could help reduce the discrepancy between these two rates, stabilize the forex market, and provide a more accurate reflection of the Naira’s value.
What is the meaning of “letting the Naira float”?
Letting the Naira float means that the Central Bank of Nigeria has stopped directly controlling the Naira’s exchange rate and is allowing market forces, like supply and demand, to determine the rate. This decision was made after Bola Ahmed Tinubu’s inauguration as the Nigerian president.
More about Naira depreciation
- Nigerian Naira Exchange Rates
- Central Bank of Nigeria Monetary Policies
- Forex Shortage and Its Impacts
- Impact of Currency Devaluation
- Black Market Exchange Rates