Financial experts have raised serious concerns over the dwindling fortune of the Naira in the foreign exchange market as the local currency moves closer to N500 to one US Dollar at the parallel market.
At the weekend, the Naira currently exchanges for N485/$1 at the parallel market and N415/ $1 at I&E Forex window, dashing expectations that the Central Bank of Nigeria’s implementation of the new ‘Naira for Dollar Scheme” will strengthen the local currency.
It would be recalled that the Central Bank of Nigeria had begun its mission to rescue the Naira in 2019 by banning 42 items that can be produced locally from the official forex access window.
However, the emergence of the dreaded COVID-19 pandemic in February 2020 worsened Nigeria’s economic woes and exerted heavy pressure on the Naira, as some investors pulled out their earnings in US dollars after oil demand slumped and volume of export shrunk dismally. This depleted foreign reserves further weakened the naira.
According to Nigeria’s first professor of the capital markets, Prof Uche Uwaleke, the exchange rate of the naira and by extension, the value of the naira, is a function of demand and supply of foreign currencies.
He reckoned that other sources of forex like foreign investments and Diaspora remittances are drying up, especially since the onset of the COVID-19 pandemic.
“A major cause of Naira depreciation is the huge forex spent importing petroleum products in a period of rising crude oil prices. The huge cost of servicing external debt is also a drain on external reserves,” Uwaleke stated.
President, Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, said the continued fall of the naira at the parallel market and Investors’ and Exporters’ (I&E) Forex window may be linked to currency speculators hoarding dollars to profit from the currency crisis.
Other market dealers attributed the naira’s continued decline to heightened forex supply shortage, demand pressure and rationing.
Gwadabe said BDCs will continue to defend the naira through compliance with the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT), supporting CBN’s exchange rate stability policies.
Recall that the CBB in a deft move to revive the economy and shore up external reserves, recently rolled out a new scheme tagged ‘CBN Naira 4 Dollar’, an inducement that would give senders of electronic offshore fund transfers an additional N5 for each dollar received.
On the possibility of the new rule promoting money laundering, Governor of the CBN, Godwin Emefiele dismissed such insinuations, explaining that offshore IMTO operators like Western Union, MoneyGram and RIA are properly licensed and regulated.
However, experts are divided as to the efficacy of this initiative, with many describing it as a forex promo that only succeeded in flaunting the poor status of the naira, just as it offers a glimpse into the bruised state of the nation’s economy.