Naira Scarcity: Black Market Exchange Rates Continue to Depreciate

The black market exchange rate has never been constant when it comes to Naira vs Dollar, so the rise and fall is something that has become a norm in the country.  However, the Central Bank of Nigeria's (CBN) program to redesign the naira has weakened the currency when compared to the dollar, despite the fact that some financial experts believe that this policy will result in a strengthening of the currency. 

It was on December 15, 2022, the CBN released new currency notes and established withdrawal limitations for individuals as well as business entities. Nonetheless, a widespread lack of the N200, N500 and N1,000 notes around the country has been attributed to a poorly implemented system by the CBN and the Federal Government of Nigeria. According to sources, the redesigning of the naira was due to the high rate of vote buying in the 2023 general election.

As a direct result of this, the value of the naira decreased in comparison to that of other currencies, most notably the dollar. The rate at which one dollar may be exchanged for one naira on the parallel market rose from N736 in December 2022 to N765 in February 2023. In the same manner, the Nafex, also known as the official exchange rate, increased from N449.05 in December 2022 to N461 in February 2023.

According to economists, the factors that impact the exchange rate of one currency for another currency include interest rates, inflation, terms of trade, and public debt.

According to research by Fitch Ratings, a shortage of naira would result in an increase in the country's demand for foreign currency, which would result in a devaluation of the local currency and, finally, a shortage of foreign currencies. Fitch predicted that the lack of naira will also lead to a rise in consumer expenditure.

Conclusion

Basically, the naira scarcity is not the reason for the rise and fall of conversion in the black market. Before the CBN directive on stopping the use of old notes ranging from N200, N500, and N1000, the exchange rate has depreciated countless times; it’s best to address the issue as it is. The CBN needs to work on more tactics to stop the devaluation of the naira in the black market which has affected the price of things in the marketplace.