Why the exchange rate is not yet N1,000/$1

Nigeria’s stronger oil earnings and rising foreign exchange reserves have improved the country’s external position, but the naira has remained above N1,300 to the dollar, raising questions about why higher dollar inflows have not translated into a significantly stronger exchange rate.

Nigerians’ love for a stronger naira reflects a populist belief that this often leads to a lower cost of goods and services.

Thus, many on social media wonder why we haven’t seen the exchange rate strengthen to as high as N1000/$1.

The divergence has become more evident as crude oil production improves and revenue from the Nigerian National Petroleum Company Limited (NNPC Ltd) remains elevated. NNPC’s monthly revenue rose from N2.57 trillion in January 2026 to N4.97 trillion in April, before moderating to N4.34 trillion in May, N4.39 trillion in June and N3.09 trillion in July.

Meanwhile, Nigeria’s foreign exchange reserves have climbed to about $53.9 billion as of September 1, while the naira has continued to strengthen gradually.

The currency closed at N1,324.50/$ on September 2, although the parallel market rate remained around N1,400–N1,410/$.

According to financial and economic experts, the disconnect reflects the interplay of dollar demand, foreign exchange liquidity, imports, capital flows, monetary policy and the structure of Nigeria’s external payments.

They opine that despite the improvement in oil earnings and reserves, the increase in Nigeria’s dollar inflows has not been enough to eliminate persistent demand for foreign exchange or trigger a sharp appreciation of the naira.

What experts are saying

Economists who spoke separately to Nairametrics say the answer lies in the difference between foreign exchange earnings and the dollars that actually become available to participants across the wider FX market.

Dr Yusha’u Aliyu, a researcher at the Abuja-based Institute for Professional Economists and Policy Management, said the performance of the oil market alone does not determine the value of the naira.

• “You see, the behaviour of the oil market does not determine the value of the domestic currency in particular. What normally assists the naira is the stability of our appetite for foreign consumption of different goods and services,” Aliyu said.

He explained that even when Nigeria records higher crude oil sales, the additional earnings may not be sufficient to offset the country’s demand for imported goods and services.

• “It is a paradox. What normally happens is that whatever policy you put in the economy depends on another policy,” he said.

According to Aliyu, efforts to improve domestic production can be undermined when the economy remains heavily dependent on imported inputs.

• “If you have high demand, definitely, the supply function will contract. Invariably, if you are still importing for agriculture, you require exchange rates,” he said.

His argument highlights one of the structural constraints facing the naira: Nigeria can increase its dollar earnings from crude oil while simultaneously generating substantial demand for those dollars through imports.

Dr Yusuf AbdulMarouf of the University of Abuja said stronger reserves alone could not guarantee a stronger naira, arguing that the currency ultimately depends on broader economic fundamentals.

• “In essence, naira strength depends on domestic productivity and the economy’s capacity for import substitution,” AbdulMarouf said.

He said controlling excessive money supply growth, fiscal deficits and surplus naira liquidity would also be necessary to sustain currency stability.

• “If naira liquidity continues to grow faster than the supply of foreign exchange, the pressure on the currency will remain. Oil revenue can provide a buffer, but it cannot substitute for stronger domestic production and exports.”

Higher oil receipts can therefore improve Nigeria’s external buffers without all the additional earnings immediately entering the spot FX market. Some proceeds strengthen official reserves, while other inflows may be used to meet government obligations and external payments.

On the demand side, he said, Nigeria’s reliance on imported goods and services continues to generate substantial need for foreign exchange.

As a result, he said, an increase in oil-related FX inflows can be absorbed by existing demand rather than translating directly into a stronger exchange rate.

• “Crude production also remains important because higher oil prices alone cannot guarantee a sustained increase in export earnings,” he noted.

NNPC’s operational data showed that crude oil and condensate production averaged 1.64 million barrels per day in January, fell to 1.51 million barrels per day in February and recovered to 1.56 million barrels per day in March.

Production subsequently increased to 1.68 million barrels per day in April, 1.73 million barrels per day in May and 1.72 million barrels per day in June, before easing to 1.68 million barrels per day in July.

• Dr Aliyu said, “The CBN is still giving interventions to keep the naira as it is because windows that we previously closed are now strategically modified.

He added that such interventions were necessary to help manage the exchange rate and contain inflationary pressures.

• “Those windows are necessary in order to maintain the rate at which the dollar and naira is being exchanged so that inflation can be controlled,” Aliyu said.

Also, AbdulMarouf said the distinction between higher oil revenue and a structural improvement in FX supply was important.

• “Higher oil earnings are positive, but they do not automatically mean the naira will appreciate. Oil revenue is only one component of the FX equation,” he said.
• “If production increases, oil prices remain favourable and the government is able to retain more export proceeds, then the effect on the naira can become more meaningful. But if import demand and other dollar obligations rise at the same time, the additional supply can be absorbed.”

The Bureau de Change segment also points to persistent underlying demand for foreign exchange despite the naira’s recent stability.

An Abuja-based BDC operator, Abubakar Sa’ad, said the calmer exchange-rate environment should not be mistaken for an elimination of dollar demand.

• “The demand for dollars is still there. What has changed is that the market is more stable and there is less panic than before,” Sa’ad said.

He said customers continued to approach BDC operators for dollars for travel, school fees, medical expenses and business transactions.

• “When people need dollars and they cannot get them easily through the official channels, they come to us. So even when the country’s reserves are increasing, that does not mean every customer will immediately have access to dollars at the official rate.”

According to Sa’ad, a sustained narrowing of the gap between the official and parallel markets would provide a stronger indication that underlying FX pressures were easing.

• “What we want to see is more liquidity and less difference between the two markets. That is when you can say the fundamentals are improving across the market.”

Fuel imports remain a structural pressure

Dr David Aheruvoh, a Fellow of the Institute for Chartered Accountants of Nigeria (ICAN) and the Institute for Chartered Economists of Nigeria (ICEN), pointed to the impact of Nigeria’s energy structure on the exchange rate.

Aheruvoh criticised the simultaneous removal of petrol subsidy and floating of the naira, arguing that the combination created significant pressure on households and businesses.

• “Immediately this government came in, I said we have made a mistake to remove [fuel] subsidy. And that was a disaster. Shortly after this, the CBN floated the naira. This means you are breaking your both legs. The resultant effect is that the person will stay crippled,” he said.

He argued that increasing domestic refining capacity would help reduce the country’s exposure to foreign exchange demand associated with petroleum products.

• “We need to put the refineries in place or authorise the modular refineries to produce more,” he stated.

Naira stability is not the same as appreciation

The naira’s recent performance may therefore be better characterised as stabilisation rather than a sharp appreciation.

A currency can move from rapid depreciation to relative stability without immediately recording a substantial gain in value.

• “Stronger reserves, improved oil receipts and better FX-market conditions can reduce depreciation risks, while persistent demand for dollars limits the pace of appreciation,” Sa’ad noted.

Recent exchange-rate movements illustrate this trend. The naira strengthened to N1,329/$ on September 1 and N1,324.50/$ on September 2, indicating continued improvement in the official market. However, the parallel market remained significantly weaker.

The Central Bank of Nigeria has also maintained a tight monetary policy stance, with the Monetary Policy Rate held at 26.50% at its July 2026 meeting.

What you should know

Nairametrics earlier reported that Nigeria’s crude oil production rose to an average of 1.56 million barrels per day (mbpd) in June 2026, marking the country’s highest monthly crude oil output since April 2020.

• Nigeria has faced significant challenges in meeting its OPEC production quota in recent years due to crude oil theft, pipeline vandalism, underinvestment, and operational disruptions.
• According to the latest data by the National Bureau of Statistics, the oil sector grew by 7.31% year-on-year in Q2 2026, up significantly from the 2.57% growth recorded in the first quarter of the year.
• However, the growth rate was lower than the 20.46% recorded in the corresponding quarter of 2025.

On a quarter-on-quarter basis, the oil sector expanded by 10.91%.

The sector’s contribution to Nigeria’s real GDP also increased to 4.16% in Q2 2026, compared with 4.05% in the corresponding quarter of 2025 and 3.92% in Q1 2026.

The broader Nigerian economy also expanded during the period, with real GDP growing by 4.43% year-on-year in Q2 2026, up from 4.23% in Q2 2025.