Nigerian Naira Nose Dive: Stakeholders Concerned about Possible N1000/$1 Exchange Rate

With the gradual depreciation of the Nigerian naira, it is currently trading at N795 to $1 at the parallel market and selling officially for N438.85, according to the Central Bank of Nigeria (CBN). The ever-growing space between the two market rates has raised different questions among financial stakeholders.

One such question is whether the exchange rate will be N1,000 to $1 by the end of 2022. However, with the naira’s fast pace depreciation, some currency operators believe that the speculation is not baseless as the demand for the dollar continues to increase.

According to a black market trader, “At the rate, we are going, it is very likely the exchange rate will drop further. It might get to N1000 to $1 by December if more people buy than sell”. If this happens, the naira would have depreciated by 20% in eight weeks. 

Why the drastic fall in the Nigerian Naira

High demand for dollars versus low supply

The downward trend of the naira is partly due to the September school rush for people studying abroad, the high rate of people emigrating from the country, the payment for imported goods, capital repatriation and the lack of available dollars to circulate.

With the festive period approaching, a black market trader believes the naira might fall with another demand for the dollar by people planning to travel out of the country for vacation. The anonymous person said, “The number of Nigerians with family abroad is not much, so most of them will need to buy dollars so they can go and spend Xmas with their families abroad”.

New naira note

Financial experts have criticised the redesigning of the four highest naira denominations. From their views, this might further devalue the currency. Despite the intentions of the CBN to use the medium to reduce the naira in circulation and reduce inflation a little, this move might be the wrong one.

This is because the CBN announcement led to an increase in the exchange of naira to dollars. Instead of taking it to the bank, Nigerians are exchanging it with dollars. Despite the reactions, the CBN is still set to launch the new resigned naira notes. With the latest development, CBN has put some orders in place.

According to the Ministry of Finance, banks must only accept cash from customers with full know-your-customers (KYC) and bank account details; the cash must only be paid into customers’ accounts; cash must not be paid into ledgers or suspense accounts; CBN and EFCC monitor all deposits; Old currency will become useless on January 31, 2023; CBN will no longer print large quantities of cash; the new cashless policy will be announced in January; CBN  will drive digital adoption and opening of new accounts, and banks that receive cash from non-account holders or customers will be penalised by CBN and EFCC. 

Plausible solution on how to save the Nigerian naira 

As of September 2021, the naira was N580 to $1 at the parallel market. This drop saw reactions and speculations of the question would naira soon hit N1000 per dollar. Although the question was raised in 2021, gradually, it is becoming a reality. This is evident with the naira N800 or N775 to $1 at the black market as of October 31, 2022. This has raised different suggestions on how to save the currency. Let’s have a look.

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Reduce the demand for dollars

Nigeria has a high demand for dollars but a low supply. This demand has reduced the value of the naira as it increases the exchange rate of the naira to $1.

In Nigeria, the leading foreign exchange platform is petroleum products. The Central Bank of Nigeria (CBN) in 2021 said that $1.04 billion was used to import petroleum products. This reduced the foreign exchange reserve from $40.54 billion to $39.77 billion in the first quarter of 2022.

With this, Taiwo Oyedele proposed that the government should find a way to stop the importation of fuel. This way, there will be enough foreign exchange reservations to stabilise the naira.

Though a solution seems feasible with the Dangote refinery, this begs the question if Aliko Dangote would not want to be paid in dollars.

Increase foreign investment

Foreign investment in Nigeria has recorded a downward trajectory over the years. According to the National Bureau of Statistics (NBS), in 2021, capital importation into Nigeria reduced year-on-year (Y-O-Y) to $6.7 billion (31%).

Since foreign investment means more dollars in Nigeria’s reserve, it is therefore essential for the government to put suitable structures in place to attract investors. In 2017, the increase in foreign investment aided the naira-to-dollar transaction. This saw it reduce from N520 to N360 per dollar.

Monetise the Japa trend

Many Nigerians have emigrated out of the country due to factors like the depreciation of the naira, which has increased the cost of living. Since the situation in the country is not changing anytime soon, former First Bank Chairperson, Ibukun Awosika suggested that the government should take advantage of the Japa trend.

She believes that the government can train experts with the aim of exporting talent to other countries. Instead of losing assets, the government can make them allies which becomes a win-win situation.

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