The Nigerian Naira reached a new historical low on Friday, December 8th, 2023, closing at N1,099.05 per dollar in the official market.
This represents a significant depreciation of 23.29% compared to its previous closing rate, marking a concerning trend just 17 days before Christmas.
This marks the first time the Naira has crossed the N1,000/$ threshold, signifying a significant depreciation and raising concerns about its impact on the economy.
This development represents a major turning point in the history of the Naira, as it has never before reached such a low exchange rate.
Despite recent efforts by the Central Bank of Nigeria to bolster the foreign exchange market, the Naira’s downward trajectory continues, raising anxieties over its impact on the upcoming holiday season, traditionally characterized by increased consumer spending and reliance on imported goods.
This development is likely to exacerbate existing inflationary pressures and further strain household budgets, particularly for those reliant on imported goods.
The implications for businesses, both large and small, are also significant, with potential increases in production costs and challenges in maintaining profitability.
The domestic currency depreciated by 23.29% to close at N1,099.05 to a dollar at the close of business, data from the NAFEM where forex is officially traded, showed.
- This represents an N255.98 loss or a 23.29% decline in the local currency compared to the N843.07 it closed on Thursday and an all-time low per the Nairametrics tracker.
- However, the naira depreciated marginally at the parallel forex market where forex is sold unofficially, the exchange rate depreciated by 0.59%, quoted at N1180/$1, while peer-to-peer traders quoted around N1193.56/$1.
The Central Bank of Nigeria (CBN) has extended the timeline for the issuance of letters of credit from 24 hours to five working days as the country continues to struggle with foreign exchange scarcity.
In the approved 2020 service charter of the CBN, the timeline for the issuance and management of letters of credit was 24 hours.
However, the newly approved 2023 service charter shows that the timeline is now five working days.
Also, Nairametrics observed that the CBN extended the timeline for the registration of Form M and NXP from 24 hours to two working days.
Earlier in June 2023, the CBN announced the unification of all segments of the forex market, collapsing all windows into a single official window for FX transactions.
Although this was part of an effort to drive liquidity and stability in the forex market in Nigeria, it appears to have had a counter-effect, as it triggered further instability in the market.
Nairametric reported that the naira lost nearly a fifth of its value as it traded at N951.2/$ on the official Investor and Exporter forex window on Wednesday.
This has affected local and international trade, especially the import of goods and services in the country, with reports stating that foreign suppliers have started rejecting letters of credit from Nigerian businesses.
For the importation of visible goods, a letter of credit is a mode of payment.
As requested by the customer, the bank promises in writing to pay the exporter a certain sum within a certain time frame in return for goods, as long as the customer provides the bank with the proper paperwork.
Also, to import goods denominated in foreign currency into Nigeria through the CBN Single window, all importers are required by law to fill out Form M. All exporters are required by law to fill out the Nigeria Export Proceed Form (NXP) before sending goods outside of the country.
The current forex crisis in the country likely triggered the increase in the timelines for letters of credits, Forms M and NXP in the newly approved service charter by the Governor of the CBN, Yemi Cardoso.
According to a statement from the CBN, the service charter is a prerequisite of the Business Facilitation Act 2022 that is meant to drive the ease of doing business in Nigeria.
It enables the CBN to comply with SERVICOM’s directions on improving customer service delivery.
Expert reaction
Amid the rising free fall of the Naira both at the official Nigerian Foreign Exchange Market (NAFEM) and the unofficial market, financial experts had called on the Central Bank of Nigeria (CBN), to de-dollarise the economy by declaring any local transactions in the US dollars illegal.
Speaking on strategies that can be used for the naira to regain strength, the founder and chief consultant of B. Adedipe Associates Limited (BAA Consult), Dr. Biodun Adedipe, said the CBN should stop government agencies from charging local operators and entities in US dollars.
According to him, the sale of crude oil to local refineries should also be made in Naira rather than in US dollars.
- Adedipe said: “CBN should deal transparently with participating banks at the I&E Window. De-dollarize the economy by declaring as illegal any local transactions in US dollars (sale of assets, rent/leases, and other services, including school fees and medical bills) and ensure that government agencies stop charging local operators and entities in US dollars (quite common in the maritime sector).
- “Other suggestions include the need to ensure that the sale of crude oil to local refineries should be made in Naira rather than dollars. “
- “President Bola Tinubu should have a direct engagement with bank CEOs to generate ideas and use moral suasion to enlist their support for the market reforms. Face the reality that unified exchange rates (not any different than floating the Naira) is a poor policy choice for a structurally defective and weak economy like ours,” he added.
