In a troubling development, the Nigerian naira has reached a new historic low, plummeting to N1,105 against the U.S. dollar on the official market. This represents a significant drop from its previous closing rate of N830 per dollar, according to data from the London Stock Exchange Group (LSEG).
The precise cause of the naira’s decline in the official market remains unclear, injecting an element of uncertainty into the economic landscape.
It is noteworthy that the currency of Africa’s largest economy has consistently hit record lows on the parallel market due to excess demand being redirected from the official market.
Traders attribute the recent fluctuations in the naira to government-announced policies, which introduce an element of uncertainty for speculators. The Federal Government is actively planning to digitize foreign exchange transactions to discourage speculative demands and the hoarding of foreign exchange in cash.
Nigeria has been grappling with chronic dollar shortages since a period of low oil prices led foreign investors to exit local assets. The subsequent struggle to attract investors back, coupled with challenges in meeting the demand for dollars from various sectors, has placed additional strain on the economy.
Consequently, the Central Bank of Nigeria (CBN) has initiated a series of measures, including a crackdown on illegal currency trading, in an effort to narrow the gap with the unofficial exchange rate. These measures aim to reduce the disparity between the official and unofficial exchange rates of the naira.