Currency Dealers, Analysts List Factors Behind Naira’s 23% Depreciation In 4 Days

Currency Dealers, Analysts List Factors Behind Naira’s 23% Depreciation In 4 Days

Last week witnessed a significant 23% decline in the value of the Nigerian Naira against the US dollar, a trend attributed to several factors by currency dealers and analysts. The depreciation, which occurred over four consecutive days, raised concerns among market participants and underscored the need for effective intervention measures to stabilize the currency…….READ ALSO Bulletproof Boom: Surge In Demand For Armoured Vehicles Amid Kidnapping Crisis, Dealers Struggle With Forex Woes

According to financial experts, heightened demand for dollars in the parallel market, driven by both banks and end-users, contributed to the Naira’s depreciation. This demand was fueled by fraudulent activities facilitated by the lower exchange rate prevailing in the parallel market compared to the official market rate. Banks took advantage of this gap by purchasing dollars at a lower rate in the parallel market and reselling them to customers at a higher official exchange rate.

Furthermore, some forex end-users engaged in arbitrage by purchasing dollars in the parallel market, depositing them into domiciliary accounts, and selling them to banks at a higher official rate. This practice exacerbated the demand for dollars in the parallel market, leading to a rapid depreciation of the Naira.

Additionally, currency traders highlighted the delayed distribution of dollars to Bureaux De Change (BDCs) by the Central Bank of Nigeria (CBN). The sporadic allocation of dollars to BDCs left some operators without any dollar supply for extended periods, despite depositing Naira funds with the apex bank. This situation further strained the forex market and contributed to the Naira’s depreciation.

Aminu Gwadabe, the President of the Association of Bureaux De Change Operators of Nigeria, emphasized the impact of speculative trading on platforms like Binance, which profited from Naira depreciation. He highlighted the need to address speculative activities and ensure stability in the forex market to mitigate further depreciation of the Naira.

Overall, the Naira’s recent depreciation underscores the importance of effective intervention measures, enhanced regulatory oversight, and measures to curb fraudulent activities in the forex market. Addressing these challenges is crucial for restoring confidence in the currency and promoting economic stability.

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