Last year, the Nigerian naira depreciated in the foreign exchange markets (Official and Black ) amidst lingering forex scarcity in the local economy.
The naira closed the year at N461.50 per dollar at the official window at the close of business on Friday last week, the last business day of 2022, data published on FMDQ websites, where forex is officially traded, showed.
This implies a 6.1 per cent depreciation from the N435.00 per dollar the currency was exchanged at the beginning of trading in 2022.
Similarly, at the parallel market, the local currency plunged further against the rate it traded in January last year as the dollar crisis worsened amid galloping inflation.
This was largely exacerbated by scarcity in the inflow of dollars due to depleting foreign reserves and the sudden surge in demand for foreign currency by Nigerians seeking to settle import bills, school fees and other demands by households and corporate entities.
Within this period, the naira fell to all-time lows at intervals within the year under review, mounting significant pressures on domestic prices of goods and services, especially food prices.
In the parallel market, the exchange rate which moved within the range of N561.00 and N570.00 to a dollar at the beginning of 2022, nosedived to almost N1000 per dollar in the fourth quarter of 2022.
It would later appreciate closing the year trading at N735 and N745 amidst clamp down on Bureau De Change operators by the anti-graft agency, Economic and Financial Crimes Commission. Yet, the spread between the official and parallel market exchange rates of the naira is still quite significant. It widened the most in six years in September last year, as demand for foreign currency continued to surpass supply.
PREMIUM TIMES presents some of the key issues and policies that impacted the exchange rates of the local currency last year:
1. Rate adjustment by the CBN
Less than 48 hours into the year 2022, Nigeria’s Central Bank adjusted the country’s exchange rate on its website to N413.49 to a dollar.
The move by the apex bank then indicated another round of devaluation of the currency by the regulators, just like it did in May 2021 when it devalued the naira from N379 to N411.00 per dollar after adopting the Investors and Exporters (I&E) window rate, also known as Nafex rate.
Following the announcement of the decision, the naira slipped further at the authorised market amidst lingering forex scarcity.
2. CBN threat to arrest, prosecute Nigerians buying dollars with Naira
In July last year during the Monetary Policy Committee (MPC) meeting in Lagos, the CBN governor, Godwin Emefiele, threatened to arrest and prosecute Nigerians (politicians) using naira to buy dollars.
“For those taking money from banks to buy dollars, it is illegal to do so. If the security agencies hold you, you will know the implication of that,” Mr Emefiele said while reading out the riot act to bank customers.
He urged Nigerians illegally exchanging naira for dollars to stop and that the apex bank would conduct investigations and bar those found culpable from conducting transactions in Nigerian banks.
But within this period, the naira slumped further both at the official and unofficial market, causing the Senate to summon Mr Emefiele over the continuous decline of the local currency.
Meanwhile, analysts also blamed the continuous weakening of the naira on rising import bills, dollar savings and the accumulation of cryptocurrencies by Nigerians who lost confidence in the local unit due to its massive depreciation against the greenback.
3. Hike in interest rates
Two days after the CBN made its biggest interest rate hike yet in a bid to check inflation and defend the currency, the Naira fell significantly against the dollar at the parallel market.
Within this period, the local unit depreciated from N725.00 it was trading to N735.00 and above at the unauthorised market.
4. Campaign flag-off
Similarly, less than 48 hours after political parties officially kicked off the 2023 general election campaigns in the country, the local currency plummeted significantly on the black market across States in the country.
The Naira also fell slightly at the official window.
5. Replacement of Naira notes
A day after the CBN announced that it will withdraw higher notes to check fraud, inflation and insecurity, the Naira fell significantly against the U.S. dollar at the parallel market.
Within that period, the black market exchange rates across states showed the naira was bought at N775.00 and above for a dollar, and sold at N781.00 in Abuja. This represents a 2.64 per cent depreciation from N760.00 it was trading before the announcement was made.
Likewise, the domestic currency weakened to its lowest rate at the official market at the time to trade at N444.75 per dollar. The release of new naira notes has affected the volume of foreign exchange transactions as the deadline for transmitting the old notes to banks approaches.
6. EFCC raids on BDC
Operatives of the Economic and Financial Crimes Commission on several occasions raided the offices of black market currency dealers across States in the country in a bid to halt the rapid fall of the naira after the CBN announced the move to replace notes to fight counterfeiting, inflation and insecurity.
A week after the CBN announcement, the Naira plunged rapidly to N840.00 and above per dollar.
Meanwhile, the expectation that the note replacement policy could help fight money laundering remains uncertain as suspected holders of illicit cash scramble to change their money into foreign currencies, with a ripple on the value of the local unit.
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