The Nigerian Naira appreciated significantly against the US dollar throughout March 2024, marking a major turnaround for Nigeria’s exchange rate policy.
Official figures indicate that the Naira closed the month at N1309/$1 on the last trading day, up from N1595.11/$1 at the end of February 2024.
This 21.8% gain points to the success of several forex policies, strategies and interventions by the Central Bank of Nigeria (CBN) all aimed at stabilizing and strengthening the national currency.
In the parallel market, the Naira saw an even more pronounced recovery. The exchange rate improved from N1600/$1 in February to N1250/$1 in March, representing a 28% gain in one month highlighting the effectiveness of the measures taken to bridge the gap between the official and unofficial currency markets.
The gains in the official and parallel market are the largest seen in over 5 years. Before now, the exchange rate was fixed at about N450/$1 for almost two years and around N380/$1 between 2020 and early 2021.
Drivers of the Naira’s Appreciation
On the official end of the market, the apex bank started by addressing suspected cases of excessive foreign currency speculation and hoarding from Nigerian banks.
- In a circular titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” the CBN stated that banks’ Net Open Position (NOP) must not exceed 20% short (owning more than owed) or 0% long (owning no more than the bank’s shareholder funds not reduced by losses) of the bank’s shareholders’ funds.
- Experts suggest this removed a huge area of speculation from the market, ensuring that only genuine demand for forex was being seen.
- The apex bank also announced the complete clearance of the valid foreign exchange backlog. They stated that they concluded the payment of $1.5 billion to settle obligations to bank customers, effectively settling the residual balance of the FX backlog.
On the retail end of the market, policies such as allocating $20,000 to each Bureau De Change (BDC) at a competitive rate and removing the exchange rate cap for International Money Transfer Operators have been pivotal in strengthening the exchange rate on the retail end.
- This follows a new guideline that increased the share capital of Bureau De Change (BDC) operators to N2 billion and N500 million for Tier 1 and Tier 2 licenses, respectively.
- The apex bank followed this up with the revocation of over 4,000 licenses of BDC operators.
- Also, as part of measures to manage demand in the retail end of the market, the apex bank stated there will be a cap on foreign currency purchases for school fees at $10,000 per customer annually.
- This process requires the transaction to be conducted through the BDC’s domiciliary account with a Nigerian bank, ensuring direct payment to the educational institution.
Perhaps the most effective policy so far is the crackdown on the cryptocurrency platform, Binance, which it accuses of aiding manipulation of the exchange rate system.
- Nigerian authorities blocked web access to cryptocurrency exchanges and then detained two Binance executives who had flown to Abuja to discuss the crackdown.
- In response, Binance has removed the naira for trading from its website.
- The eventual stop of Naira to stablecoin pairing on the world’s largest cryptocurrency platform meant a major benchmark for price gouging was removed.
We are not seeing this reflected in current prices of things yet, perhaps the importers and their trade partners are still cautious about the current wave of naira appreciation. Nevertheless. I expect the next target to be NGN 1,000 or lower to the dollar.
Can I ask a few questions?
How much in percentage did the Naira lose in 2024?
It lost over 95% then the dollar made a retreat of about 60%. Your write up is structured as if you want to make CBN look good after a woeful performance in the last 9months.
How much was the value of the Naira to the dollar in May 2023 when this present administration got into power? The Naira has lost about 200% till date.
We shouldn’t be rejoicing with terrible figures like this.
It will do Nigeria a lot of good if you sit up and do your job like you aren’t paid to skew the reality.
Well said. When I read “Best in 5 Years” I was like – are these people joking?
How did we get here? We now celebrate naira gaining against dollar. Our leaders need to wake up. This is not our country where a dollar was to 85kobo. Where have we missed it. I love my nation and I believe in this country that we can make things work again.
God bless 🇳🇬
Nigeria!
If we manufacture most of what we need in Nigeria (purchasing with Naira) rather than depend on imports (purchasing with dollars), the goal of Naira strengthening to N3/$1 is achievable. There will be plenty of good paying jobs for the unemployed masses and there will be no incentive for the best and brightest brains to leave Nigeria. However, this is a pipe dream until supply of electricity is stable. Nigerian manufacturing industry cannot thrive without stable electricity. The CBN intervention is a temporary fix that won’t solve the structural problems.
Exactly. You are right. Temporary fix. Give