Naira Breaks Nine-Month Record, Tumbles to N800 Per Dollar as CBN Executes Extreme FX Rules For Banks

On July 11, 2023, the Nigerian Naira reached its lowest point in nine months, falling to N800 per dollar, as demand for the dollar surged in the parallel market. This represents a 0.62% depreciation in the value of the Nigerian currency compared to the previous day's rate of N795 per dollar.

According to market dealers, the increased demand for the dollar is driven by individuals purchasing it for summer holidays, importation, and other needs. In October 2022, when the Naira depreciated to N800 per dollar, there was a surge in demand from those who had kept dollars at home during the currency redesign policy implemented by the Central Bank of Nigeria (CBN).

Data from FMDQ reveals that at the official Investors and Exporters (I&E) window, the Naira weakened by 5.2%, with the exchange rate at N788.42 per dollar on July 11, 2023, compared to N744.07 on the previous day.

The CBN had abolished certain segments of the official foreign exchange market in favor of the I&E window, reintroducing the willing buyer and willing seller model. This adjustment led to an increase in the official exchange rate from N463.38 per dollar to N800 per dollar.

Prior to mid-June 2023, the exchange rate policy focused on maintaining a fixed rate below the market-clearing rate. However, the World Bank highlighted that the NAFEX window (I&E window) did not operate on the willing buyer, willing seller model and continued to be managed by the CBN, resulting in a lack of price discovery and multiple FX windows causing frustration in the market.

The implementation of a new forex purchase law, which requires buyers to present Tax Clearance Certificates to banks and authorized dealers, has pushed many buyers to the black market. The black market does not require the same documentation, leading to a surge in demand as buyers seek alternatives.