Naira’s Devastating Plunge: Dollar Exchange Rate Hits Rock Bottom in Unprecedented Black Market Freefall
Nairas Naira Hits Historic Low of N900/$1 on Parallel Market Amidst Overwhelming Foreign Currency Demand. On Tuesday, August 8, 2023, the naira experienced an unprecedented plunge, sinking to a historic low of N900/$1 on the parallel market due to an intense surge in demand for foreign currency that surpassed its supply.
Forex traders, who quoted exchange rates as high as N900/$1 for ‘inflows’ and N895/$1 for cash transactions. ‘Inflows’ refer to the sale of forex through interbank transfers, which typically carries a higher cost than cash transfers.
Since the unification of exchange rate windows, the exchange rate between the naira and dollar has weakened by 16%. This contrasts with the 2.5% depreciation recorded between January 1 and June 14 (pre-unification). The naira experienced a 22.9% depreciation throughout the entirety of 2022.
However, the surge in demand from various sectors such as importers, foreign travelers, and speculators has induced exchange rate instability.
Upon querying the source of heightened demand, traders identified diverse groups of buyers, including importers, foreign travelers, and speculators. Concerns Loom as Demand Escalates Forex analysts voiced apprehension to Ejes Gist News , highlighting a substantial backlog of unmet forex demand in the official market, approximating $8-10 billion.
A portion of this unmet demand spills over to the parallel market, as buyers struggle to fulfill their needs from the official market’s supply.