In one week, the parallel market exchange rate witnessed a notable decrease, reaching a record low of N1,680 per Great Britain Pound (GBP).
This represents a 7% or N110 decline compared to the N1,570 recorded at the close of trading on Friday, January 12th.
The observed depreciation is unparalleled and stands as the lowest point in the historical performance of the Naira.
Factors Influencing the Depreciation
Market analysts attribute the recent decline to a consistent surge in demand for dollars that has been evident since the commencement of January. The primary contributors to this heightened demand include:
- A substantial portion of the demand is attributed to businesses actively seeking to restock goods or acquire raw materials, necessitating a higher demand for foreign exchange.
- Individuals pursuing overseas studies have also played a significant role in driving the demand for dollars. This trend is likely connected to the need for tuition payments and related educational expenses.
- The departure of diaspora Nigerians, particularly noticeable after the holiday season, has contributed to the increased demand for foreign currency. The departure of individuals from the UK has had a notable impact on the parallel market.
- With schools abroad reopening, international students are actively restocking their foreign currency reserves to meet impending school fees and other financial obligations. Additionally, students are securing funds for holiday allowances.
The unprecedented depreciation marks the lowest point in the naira’s history against the British pound, raising concerns about potential economic ramifications.
What you should know
Nairametrics reported that the Central Bank of Nigeria (CBN) said that it will collaborate with relevant agencies to impose appropriate sanctions after a forensic review uncovered severe infractions, widespread abuse, and substantial non-compliance with market regulations around foreign exchange transactions.
This is according to Mrs. Hakama Sidi Ali, the Acting Director of the Corporate Communications Department at the CBN, in a statement on Wednesday.
She elaborated that the CBN had commissioned an independent forensic review conducted by a renowned firm, which served as the basis for these crucial decisions.
Mrs. Sidi Ali also stressed the CBN’s resolute determination to cleanse the financial services sector, instil trust among all market participants, and build confidence among both internal and external stakeholders in the Nigerian economy.
The statement read:
- “The CBN Acting Director, Corporate Communications Department, Mrs. Hakama Sidi Ali, disclosed this in Abuja on Wednesday, January 17, 2024, explaining that the Bank had commissioned an independent forensic review by a reputable firm. She also disclosed that payment of the forex backlog for qualified transactions had commenced.
- “She, however, noted that the review revealed grave infractions, gross abuse, and significant non-compliance with market regulations, and appropriate sanctions would be enforced in collaboration with relevant agencies.
- “Mrs Sidi Ali stressed the CBN’s resolve to sanitize the financial services sector and foster trust among all market participants, as well as internal and external stakeholders, in the Nigerian economy. Nevertheless, she said the CBN will continue to settle the legitimate foreign exchange backlog as it has consistently been doing in the last three months.”
The CBN also said that it has carried out a major financial injection of approximately $2 billion spanning diverse sectors, including manufacturing, aviation, and petroleum.
It highlighted the successful clearance of the entire liability of 14 banks, marking a significant milestone in resolving the forex backlog, and initiated settlements with foreign airlines.
