On Wednesday, 27th July, Nigeria’s currency, Naira, fell to a record low of N710/$1 on the parallel market. Aboki Forex, one of Nigeria’s most reliable exchange aggregators, published this figure. What’s surprising is the rate at which the naira fell, having closed its position on Monday, 25th July, at N670/$1 representing a 6.7% crash.
Needless to say, that the efforts of the Central Bank of Nigeria (CBN) to stop or slow down the worsening crash of naira has yielded no result. Exchange rate has gone from N180/$1 in March 2014 when Godwin Emefiele became governor of the Central Bank of Nigeria to N430/$1 on Wednesday on official platforms.
Last year, Nigeria’s apex bank stopped the sale of forex to Bureau de Change operators in the country. CBN claimed the operators were exchanging foreign currencies beyond the approved rates by the apex bank, therefore sabotaging efforts to stabilize the naira.
Then, Nigerian commercial banks also placed a $20 daily cap on debit cards in a bid to reduce the rate at which dollars left the economy.
The Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele last week described the act of withdrawing naira to buy dollars as an illegal action. He further threatened that security agencies in the country would arrest people engaging in such an act.
All of these policies and measures further depreciated the naira, but compounded the existing dollar scarcity in the country. Consequently, the exchange rate in the parallel market has fallen from around N501/$1 to over N700/$1 as residents of the country struggle to gain forex for business and other personal needs.
Why Naira is crashing
Financial experts in Nigeria have identified the excess printing of naira back in 2015 as the primary cause of the currency crash. The Central Bank allegedly printed about N20 trillion and loaned it to the federal government for 30 years.
This is illegal as the CBN Act allows the apex bank to loan the federal government only 5% of the revenue generated in the preceding year.
Another major factor that has greatly impacted the depreciation of naira is the lack of refineries to process and convert pumped crude oil. As Nigeria imports refined petroleum products, the forex earned from exporting crude oil and money from the foreign reserves goes to purchasing the refined petroleum products from suppliers.
This implies a reduction in the country’s foreign reserve and liquidation of forex in the country.