After the Nigerian Naira currency depreciated against the U.S. dollar to 493 naira on the black market on May 25, 2021, the exchange rate against major currencies fell further. Before the most recent depreciation, the currency stabilized at the level of 485 naira to the dollar. Soon after, the exchange rate fell to a three-and-a-half-year low of 500 naira per US dollar in November 2020.
Naira is under pressure again
As one report explained, the latest devaluation of the naira occurred a week after the Central Bank of Nigeria (CBN) devalued the currency by more than 5%. As previously reported by Bitcoin.com News, CBN recently allowed the naira’s exchange rate to fall from 393 U.S. dollars to 1 U.S. dollar to around 410 U.S. dollars to 1 U.S. dollar.
However, the same currency depreciation seems to have prompted the latest depreciation of the naira in parallel markets. At the same time, another report attributed the new pressure on the Nigerian currency to “black market speculators who used the newly adopted exchange rate for black silver to buy and hoard U.S. dollars.”
Expect further depreciation
At the same time, the same report also quoted an analyst from a local stock brokerage company CSL, explaining how Nigeria’s backlog of foreign exchange demand will continue to put pressure on the naira in the short term. Analysts continued:
Therefore, CBN may depreciate the I&E exchange rate by about 5.0-7.0% before the end of the year to release foreign exchange liquidity, attract new foreign portfolio investment (FPI) flows and curb current account imbalances. The difference is expected to reach 10.80 US dollars. It will reach 1 billion US dollars in 2021 (2.1% of GDP).
Before the devaluation of the naira, multilateral lending institutions such as the World Bank and the International Monetary Fund had promoted the unification of Nigeria’s multiple exchange rates. According to CSL stockbrokers, a unified Nigeria exchange rate sets the tone for “getting more funds from multilateral institutions.”
Starting in 2017, Nigeria began to use multiple exchange rates that CBN continues to defend. Although the central bank insists that its decision to ration foreign currencies is in the country’s best interest, this policy has received widespread criticism.
What is your opinion on the Naira’s recent devaluation of major currencies? You can share your thoughts in the comments section below.
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