Nigerian currency plunges to new low of 570 – 10% of value lost in less than 30 days – Economy

The Nigerian currency Naira plunged to a new all-time low of N570 for every dollar on September 16, 2021. This new exchange rate means that since August 17, the naira has now lost about a tenth of its value against the foreign currency black market.

Naira overvalued

Despite this slump, which has been attributed to the biting foreign exchange shortage, authorities insist that the real exchange rate of the naira remains unchanged at N411 for every dollar. This means that Forex buyers who source this commodity from the parallel market are now paying a premium of over N150.

Alternatively, the new parallel market exchange rate of N570 could indicate that the Central Bank of Nigeria (CBN) is now overvaluing the naira by 40%. In fact, this last point appears to be confirmed by comments made by CBN Governor Godwin Emefiele. In his comments to an investor group in late June 2021, Emefiele said recommended at the time the Naira was overvalued by 10%. He also hinted that a devaluation of the naira was on the cards.

Since then, however, the naira's official exchange rate has remained unchanged, while the currency's rate of depreciation in the parallel market appears to have accelerated, particularly in recent weeks. Meanwhile, the central bank's unwillingness to devalue the naira may have created another problem for the CBN - hoarding of foreign exchange.

Currency hoarding

As an investigation by Daily Trust found, “some people and companies in Nigeria are now saving their assets in dollars.” In his Test report, the publication quotes Malam Nura, an operator at the Bureau de Change, as saying:

If importers do not have dollars and the naira continues to fall, they may not be able to import and their businesses may be affected. I think that's why they buy and hold it, so they have enough to import for a long time.

Bitcoin.com News has similar reported that Nigerians were accumulating foreign currencies to protect their wealth from the devaluation of the naira.

Aside from worsening the country's already precarious foreign exchange situation, the continued devaluation of the naira is believed to be fueling Nigeria's inflation woes. While data shows that the country's headline inflation fell to 17.01% in August, a Test report from Proshare attributes this to “base year effects”.

Regarding Nigeria's monthly rise in inflation, the report concludes that this may be related to the "weakness of the naira in the foreign exchange market" and that this is now being "transmitted [rising] to domestic prices."

What should the CBN do to stop the fall of the Naira? Tell us what you think in the comments section below.

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