Naira Crashes At Black Market As Demand For FX Increases

Naira crashes at black market

Is it really news that Naira crashes at black market? With the current state of the nation, operation ‘Japa’ going viral, the continuous downward spiral of the naira and the increase in the demand for foreign exchange; it is inevitable.

The naira and the US dollar exchange rate closed at N417 to $1 on Tuesday, March 22nd, 2022, at the official Investors and Exporters (I&E) window, the lowest level since January 4th, 2022. In comparison to the previous trading session, when the exchange rate was N416.25 to $1, the rate fell by 0.18 % to close at N417 to $1.

In the previous five days, the parallel market exchange rate remained stable at N578/$1. But, by the close of trade on Tuesday, Naira crashes at black market by N583/$1, owing largely to increased market demand.

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Read also:10 Businesses You Can Start With 50K (Or Less) In Nigeria 2022

Furthermore, the Naira dropped by 0.7% on the peer-to-peer exchange rate market in the early hours of Wednesday morning, trading at a low of N584.1/$. The N580/$1 rate, on the other hand, was recorded on Tuesday, March 22nd, 2022.

Why Naira Crashes At Black Market

Nigeria’s foreign reserve fell 0.22% on Monday, March 21, 2022, to $39.58 billion, down from $39.67 billion the day before. The CBN’s interference in the official market is said to be the cause of the decline.

Since the Central Bank of Nigeria (CBN) prohibited the sale of foreign currency to Bureau de Change (BDC) operators, the parallel market exchange rate has fallen.

One of the main reasons why bidders will be willing to pay any price to buy dollars is a speculative move known as “pump and dump.” Speculators inflate prices in order to force the Central Bank to intervene.

Read also: Nigeria-China Currency Agreement And How It Will Solve The Currency Crisis

The move entails simply raising the currency rate until those who have made significant investments exit just before the crash.

The Effect Of Naira Crashing

When an import-dependent country’s currency falls in value, unemployment and poverty almost always rise. This is the current situation in Nigeria. With rising demand for imported goods and dwindling prices, the naira remains under pressure, resulting in regular devaluation.

Read also: Credit Crisis – Causes, Effects And How To Manage Credit Crisis

The Wayforward

Dumebi Udegbunam, Fixed Income trader at United Bank for Africa (UBA) quoted that “There is little or nothing an average Nigerian can do to help against the depreciation of the naira. 

However, there is a need for us as a country to focus on strong backward integration programmes tailored towards curbing import pressures where we can actively manufacture through the whole value chain. Again, recovery from an exchange rate crisis can only be through diversification of the economy and policy changes.”

Read also: Important Ways To Turn A Business Failure Into Success

Dr Omobola Adu, a Research Analyst at GDL, said Nigeria should safeguard itself from impending doom. “The only way the average Nigerian can safeguard against the falling Naira value is to invest in dollar assets. There are several mutual funds today that offer the opportunity for retail investors to invest and earn returns in dollars.”

One way we can help our economy is to focus more on exporting and be more welcoming to foreign investors.

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