The exchange rate between the naira and dollar at the official NAFEM closed the year at N907.11 per dollar marking the end of a turbulent year for the currency of Africa’s largest economy.
Data from the FMDQ where the exchange rate trades officially reveal the naira closed slightly better than the N1,043/$1 it closed a day earlier.
However, at N907.11 the exchange rate has now recorded a depreciation of 26.8% since June 14th, when the exchange rate market was unified by the central bank on the order of the Tinubu administration.
On a year-to-date basis, the exchange rate has depreciated by a whopping 49% after opening the year at N461.5/$1.
The slump has raised concerns about a deepening currency crisis in Nigeria, further compounding the economic challenges faced by the nation.
Meanwhile the NAFEX Rate closed at N1,034.78 as of December 28, 2023.
A year of historical lows
The Nigerian Naira reached a new historical low on Friday, December 8th, 2023, closing at N1,099.05 per dollar in the official market.
- This marked the first time the Naira has crossed the N1,000/$ threshold, signifying a significant depreciation and raising concerns about its impact on the economy.
- The exchange rate also fell to N1,043.9 on Thursday, December 28th for the second time since reunification.
- The exchange rate on the official black market crossed the N1000 threshold on the 29th of September 2023 per Nairametrics records. Since then it has fallen to as low as N1260, closing the year at N1,215/$1.
This development represents a major turning point in the history of the Naira, which has never before crossed the N1000/$1 exchange rate.
In the P2P market where the exchange rate is traded via cryptocurrency stablecoins, the naira closed at around N1, 200/$1.
Market Turnover during the year is also $26.8 billion roughly close to the $27 billion recorded in 2022 as most forex trades continued to take place in the black market.
Optics for the currency market
Despite recent efforts by the Central Bank of Nigeria to bolster the foreign exchange market, the Naira’s downward trajectory continues, raising anxieties over its impact in the new year when holiday activities would have ebbed and companies back to business.
- Data from the last two years suggest the exchange rate in the black market is typically stable between December and April before it starts to hit new record lows.
- However, this was when the official rates were fixed thus in a partially floating forex market, wild swings could continue if Nigeria fails to attract forex via capital importation, especially from foreign portfolio investment.
Meanwhile, the intraday high exchange rate closed a N1,224/$ while the intraday low was N700/$1. A total turnover of $89.3 trillion was also recorded.
What this means for financial statements
With the NAFEX exchange rate at N1,034, most Nigerian companies will need to translate their foreign currency balances at the exchange rate.
- Companies with a significant forex balance in their banks will likely record massive gains when they convert to naira assuming their positions were before the FX unification.
- However, companies with dollar obligations will likely book massive losses when they convert to naira using the official exchange rate.
- Most government agencies are also expected to reflect the NAFEX exchange rate.