Nigeria’s naira is on the brink of breaching 1,000 per dollar after falling to an official record low of 999 last week, Refinitiv data showed, tracing its weakness on the unofficial market where it trades freely.

President Bola Tinubu removed Nigeria’s foreign currency controls in June to get transactions flowing through the official market again to help unify the naira’s exchange rates.

But that has only fuelled the currency’s weakness and added to inflationary pressures.

Here is what Reuters says you need to know about the naira.

Why is the Naira falling?

The central bank has a backlog of accumulated forex demand on the official market, which forces individuals and businesses to head to the black market if they need dollars.

But dollar flows to Nigeria have fallen in the last few years due to declining investment and lower crude oil exports, which account for more than 90% of the country’s export income.

Investors cheered when Tinubu lifted the currency controls, hoping a unified exchange rate would make it easier to access foreign currency, but that is yet to happen.

How big is the foreign currency backlog

Nigeria has nearly $7 billion in forex forwards that are past due, which corporations bought from local banks. Banks then repaid foreign credit lines with their funds when the central bank did not pay out.

That means corporates cannot get new letters of credit, while the banks are owed dollars. New central bank governor Yemi Cardoso said clearing the backlog was a priority, but he gave no timeline for how long it would take.

Some analysts say the forward agreements could be rolled over by 24 to 36 months, giving the central bank more time to find the dollars to pay off the corporates.


How big are Nigeria’s forex reserves

The country’s forex reserves fell to $33.5 billion in September from $37 billion in January, central bank data shows.

In August, the central bank published audited accounts for the first time since 2018, and revealed that its reserves included a $19 billion commitment in derivatives – slashing the liquid amount of the reserves.
JPMorgan calculated that the country’s net FX reserves stood at $3.7 billion as of the end of 2022, “significantly lower” than prior estimates.

Nigeria’s crude excess account only has $473,755, the National Economic Council said in August, down from a peak of $20 billion in 2008, after successive governments withdrew dollars to support the naira and budget spending.

Will the Central Bank restore Forex open positions?

Nigerian banks are not allowed to have open positions on the dollar, meaning they cannot buy forex for their account from the market or speculate on the currency’s value.
Banks use their open net positions on foreign currency to finance short-term trade lines without resorting to the central bank for bidding. That means banks “make the market” for dollars and provide two-way quotes for buying and selling the currency, effectively creating a fully functioning forex market.

A trader said if banks were allowed to make the market on the dollar, the local currency could weaken further because they would sell to customers at rates determined by demand and supply.

Nigeria’s 2024 budget assumes a benchmark exchange rate of 700 naira to the dollar. The finance minister says the parallel market rate of 1,300 naira does not reflect the true value of the local currency.

“Given that the naira remains much weaker on the parallel market, further devaluations – and rises in inflation – are likely,” Capital Economics said in a research note.

https://businessday.ng/news/article/explainer-what-is-pushing-the-nigerian-naira-to-record-lows/

Tinubu is a questionable accountant who knows ZILCH about how to manage an economy. Floating the naira was his most unreasonable decision.

Nigeria’s 2024 budget assumes a benchmark exchange rate of 700 naira to the dollar. The finance minister says the parallel market rate of 1,300 naira does not reflect the true value of the local currency.

After floating and realizing it could reach N1350 soon due to lack of forex, they quickly pegged back the official rate to allow easier loan repayment.
Tinubu has been reversing his major decisions. That is a poor self appraisal score.

Also note
1. Federal government has always use FX reserve to defend the Naira
Previous Government was spending $1.5B monthly to defend it.
2. Previous Government said Nigeria FX reserve was $37b as at 2022.
JPMorgan calculated that the country’s net FX reserves stood at $3.7 billion as of the end of 2022.

The truth is that they can’t even at the moment defend it and I suspect this is going to linger for a long time simply because we are not a producing nation.

CodeTemplar:

After floating and realizing it could reach N1350 soon due to lack of forex, they quickly pegged back the official rate to allow easier loan repayment.
Tinubu has been reversing his major decisions. That is a poor self appraisal score.

this is not true floating.. True floating means 'no official rates"this is Akin to what Buhari did when he said he deregulated but he truly didn't because NNPC and DPR where still controlling the price.. For true floating, deregulation, the CBN must close the I & E windows and allow the market to be free... That's when it can stabilize.
Why on earth should we have back log of $7million to pay it's high time the National Assembly ask questions from former Finance ministers and CBN governors.