LAGOS, Nigeria — The Nigerian naira plunged to a new low in the parallel foreign exchange market this week, with the U.S. dollar selling for as much as N1,500, widening the gap between official and unofficial rates and intensifying pressure on the Central Bank of Nigeria (CBN) to stabilize the currency.
The official rate at the Investors and Exporters (I&E) window remains around N780 per dollar, but limited dollar supply and surging demand have pushed the black market rate to historic highs. The divergence has raised concerns among investors, importers, and policy analysts about the sustainability of Nigeria’s current FX regime.
“This is not just a currency fluctuation — it’s a signal of deeper structural imbalances,” said Dr. Ifeoma Nwosu, an economist at the University of Nigeria. “The naira is under siege from inflation, weak reserves, and a credibility gap in monetary policy.”
Nigeria’s inflation rate rose to 28.2% in October, driven by rising food and energy costs. The naira’s depreciation has further fueled price increases, particularly for imported goods. Businesses that rely on foreign inputs are struggling to access dollars at official rates, forcing many to turn to the parallel market at a steep premium.
Fintech platforms and commercial banks have begun adjusting their FX services in response. Some have introduced dynamic pricing or limited dollar transfers, citing liquidity constraints. Meanwhile, foreign investors have pulled back, with the Nigerian Stock Exchange reporting a 3% decline in foreign portfolio activity last week.
The CBN has not issued a formal statement on the latest depreciation, though sources suggest internal discussions are underway. The bank’s last major intervention — a 500 million dollars injection in September — offered only temporary relief. Analysts say further action is needed to restore confidence and narrow the rate gap.
⚖️ Pros and Cons of the Naira’s Decline
Advantages:
- Higher returns for dollar earners: Freelancers, exporters, and diaspora recipients receive more naira per dollar.
- Potential boost to exports: Nigerian goods become cheaper for foreign buyers, improving competitiveness.
- Cheaper local assets for foreign investors: Real estate and equities may attract bargain hunters.
Disadvantages:
- Rising import costs: Businesses and consumers pay more for foreign goods, fueling inflation.
- Tuition and travel strain: Nigerians studying or traveling abroad face higher expenses.
- Investor uncertainty: FX volatility undermines confidence in Nigerian markets.
- Limited access to dollars: Banks and fintechs are restricting FX services due to liquidity issues.
- Policy credibility concerns: The widening rate gap erodes trust in monetary management.
The naira’s slide mirrors trends in other emerging markets facing dollar shortages, including Egypt and Ghana. However, Nigeria’s heavy reliance on imports and limited non-oil exports make it particularly vulnerable to FX shocks.
Fitch Ratings recently flagged Nigeria’s exchange rate volatility as a risk to its credit outlook. “Persistent divergence between official and parallel rates undermines investor confidence and complicates fiscal planning,” the agency noted in a November briefing.
As policymakers weigh their options, economists are calling for a coordinated strategy that includes rate unification, export diversification, and improved transparency in FX allocation. Without decisive action, the naira’s decline could deepen, with far-reaching consequences for inflation, investment, and economic growth.
