Nigeria’s currency, the naira is now among the worst-performing legal tenders in the world. This is according to Bloomberg, which cited the parallel market as the reason.
Noting that while naira could be doing well officially since 2022 began by just 4% down against a strong United States Dollar, ahead of the Canadian dollar and the Swiss franc, Bloomberg, in its report, stated that ordinary Nigerians are suffocating under a 37% drop on the widely-used black market, which most have accepted as a better measure for the local currency.
“That makes it one of the world’s worst-performing currencies, after Ghana’s cedi, which is down nearly 55 per cent this year, and the Sri Lankan Rupee,” the Bloomberg report read partly.
Its peers, the report said, include Sierra Leone’s , which is down 36 per cent, and the Egyptian pound, which has lost 35%.
Africa’s largest economy operates a tightly controlled official rate but it’s in the parallel market where the exchange rate of the local currency is largely determined by the level of demand for the dollar.
Understanding the naira rates
When Nigeria slipped into recession in 2016, the Central Bank of Nigeria (CBN) introduced a dual exchange rate system the following year. This development was necessitated as naira continued to nosedive following the depletion of the country’s oil revenue.
At the time, oil prices plunged from $57 to $37 per barrel, which consequently mounted pressure on Nigeria’s foreign exchange reserve. BizWatch Nigeria understands that oil revenue represents 90% of the country’s foreign exchange earnings, and equally accounts for over 50% of the government’s total revenue.
The dual exchange rate system, however, consists of parallel rates and official rates. The official rate (available to investors, importers, and exporters only) harbours a much lower rate when compared to the parallel rate, which is easily accessible to anyone.
