Fears have increased that the Nigerian economy may be heading for the rocks as the Naira fell to an all-time low of N260 to a dollar at the black market, even though the official CBN rate is N197 to $1.
The wide gulf between the official rate and the black market is an incentive to financial institutions to engage in round-tripping and this has a negative effect on the Naira. If this continues, the government will have no choice but to further devalue the Naira.
In June an analyst at Lagos-based FSDH Merchant Bank Limited, Mr. Jide Solanke said: “There’s a current high demand for dollars as people are taking profits and their money out. The reserve position is robust, which means the central bank can defend the naira. These are temporary fluctuations.” However, the local currency continues to dip as the CBN holds on to its stringent dollar sales policy.
A CBN circular which comes into effect in January, “orders retail money exchanges to deposit a mandatory cautionary deposit of N35 million in an account with the central bank, in addition to a minimum capital requirement of N35 million”. The decision, experts believe, would reduce the number of BDC operators in the country and strengthen the naira.