In a troubling development for Nigeria’s economy, the turnover in the foreign exchange (FX) market has plummeted by 25% in August 2024.
This sharp decline underscores the ongoing liquidity and stability challenges faced by the official FX market.
As the Central Bank of Nigeria (CBN) grapples with these issues, the naira has continued to weaken, causing concern among economic experts and citizens alike.
The Nigerian FX market has seen a significant drop in activity, with turnover falling by 25% this month.
This decline reflects a deeper problem: a persistent struggle for liquidity within the official market.
“The drop in FX turnover is alarming,” said Dr. Amina Yusuf, an economist at the University of Lagos.
“It signals that there is not enough foreign currency available to meet the demand, which can lead to further instability.”
The naira has been under immense pressure in recent weeks.
On August 29, 2024, data revealed that the amount of naira outside banks had fallen to N3.66 trillion in July, marking the biggest decline of the year.
This drop has contributed to the naira’s depreciation, which has reached a troubling N1,625 to the dollar on the parallel market, also known as the black market.
In the black market, the naira’s depreciation highlights the broader issues within Nigeria’s FX market.
The gap between the parallel market rate and the official NAFEX (Nigerian Autonomous Foreign Exchange) rate has widened to N27 per dollar, up from N21 per dollar just a day earlier.
This increasing gap reflects the severe imbalance between demand and supply of foreign currency.
The Central Bank of Nigeria has been making significant efforts to stabilize the FX market, but these efforts have yet to yield substantial results.
The troubles in Nigeria’s FX market are compounded by global economic factors.
The U.S. dollar has been performing strongly on the international stage, bolstered by recent economic data from the United States.
According to the latest reports, the Personal Consumption Expenditures (PCE) price index increased by 2.5% in the year leading up to July 2024, matching the previous month’s gain.
Additionally, consumer spending rose by 0.5% in June and 0.3% in July.
These figures have strengthened the U.S. dollar, pushing the U.S. Dollar Index (DXY) to a 10-day high.
The index measures the value of the dollar against six major currencies and has risen by 0.3% to 101 points.
The dollar’s robust performance is expected to continue as markets anticipate a likely Federal Reserve interest rate cut of 25 basis points in the coming months.
