The naira, which has been depreciating against major currencies for the past two weeks, has made a comeback in the parallel market, registering gains.
Recall that the Nigerian currency touched an all-time low of almost N850 per US dollar on the black market shortly after the Central Bank of Nigeria (CBN) announced intentions to redesign and reissue high-value currency notes of N200, N500, and N1,000 on December 15.
CBN stated that the impacted currency notes will no longer be accepted after January 31, 2023, and requested currency holders to return their notes to banks before that date.
While some have began depositing their hoards of naira notes into banks, the majority have sought sanctuary in the dollar, purchasing dollar bills from Bureaus de Change in an effort to retain value.
In Lagos, black-market merchants ascribed the recovery of the naira to its scarcity, claiming that this was the cause of speculators’ reluctance to give higher rates for the greenback when purchasing dollars.
“There is no naira in the system,” one currency dealer in Central Lagos District, the heart of the financial market was reported to say.
He said the dollar had risen to N730, but said if a seller wants naira to be paid into his bank account, it would be done at a lower rate of N700. In Port Harcourt, a dealer priced the dollar at N700 but demanded N720 to sell dollars to buyers.
In Abuja around the Zone 4 area, some BDCs recalled the drop in patronage of the dollar over varying accounts of information.
According to Umaru Abu, “People are scared that with recent information that the US is rejecting the $100 bill, buying the dollar could be a risk, but we have now heard from CBN officials that it is not true.
“Some of my colleagues said maybe people are buying more assets due to the CBN naira redesign policy and are cutting down spending in dollars. But we have observed some drop in patronage since Tuesday evening,” he noted.
In the interim, the Institute of Chartered Accountants of Nigeria (ICAN) is concerned about the dollar’s influence on the naira.
A dollar formerly traded for between N780 and N820 on the parallel market, far more than the official rate of roughly N450/$, which has ramifications for inflation and the sourcing of raw commodities and services.
Mallam Tijjani Isa, president of ICAN, revealed this on Thursday in Lagos during a press conference commemorating International Accounting Day 2022.
“As a nation, we must find a permanent solution to the forex crisis if we are to develop at the desired pace,” he said.
Naira gain may be short-lived – AZA
While the recent strengthening of the naira against the dollar may be beneficial for taming inflation, economists note that the local currency’s rebound is unlikely to be sustained, as the flight into the dollar will resume.
“While Nigerian bureau de change operators have confirmed reduced demand at current parallel market levels, we expect dollar appetite to pick up again in the coming days and the naira to resume its recent slide,” AZA Finance wrote in a note to clients on Thursday.
The CBN has imposed limits on the amount of cash that can be deposited into a bank account and warned that it will monitor such transactions with the Economic and Financial Crimes Commission.
Since then, the EFCC has conducted raids in Abuja, Lagos, and other cities against bureau de change operators and black-market currency traffickers.