Nigeria’s currency, the naira, plunged to an unprecedented low of N1,105 to the U.S. dollar in the official market on Thursday, according to the latest data from LSEG. The significant drop from a previous rate of N830 per dollar has intensified economic uncertainty within the country.
The exact cause of the naira’s steep decline remains unclear, but it is occurring amidst chronic dollar shortages that have plagued Nigeria since a downturn in oil prices led to a withdrawal of foreign investors from local markets. This shortage has been exacerbated by speculative activities and cash hoarding, which have contributed to the naira reaching record lows in the parallel market as well.
In response to these challenges, the Central Bank of Nigeria (CBN) is taking decisive steps. It is cracking down on illegal currency trading and moving forward with a digitization strategy for foreign exchange transactions. These efforts are aimed at curbing speculative demands and reducing the gap between official and parallel market exchange rates.
As part of its strategy to stabilize the currency and manage the economic instability, the government is also advocating for the digitization of forex transactions. This approach is intended to streamline processes and restrict opportunities for speculative traders to manipulate the market.
These currency fluctuations have significant implications for Africa’s largest economy, as they affect everything from inflation rates to the cost of imports. The CBN’s actions represent a direct intervention in an attempt to restore confidence in the naira and mitigate further economic disruption.