The exchange rate between the naira and the US dollar fell significantly 6.03% during the year 2021 to close at 435 N / $ at the end of trading activities on Friday, compared to 410.25 N for one dollar recorded on the corresponding date of the last year.
The naira depreciated despite the umbrella bank’s concerted efforts to manage the exchange by intervening in the Investors and Exporters (I&E) window, which saw the volume of currencies traded in the official market increase significantly against the exchange. last year.
According to forex tracker Nairametrics, at least $ 32.2 billion was traded on the I&E window floor in 2021, which saw a significant increase after the Central Bank halted forex sales to traders in the Bureau of changes in the country and led the funding. at the official market.
Recall that the umbrella bank during a briefing on monetary policy in July banned the sale of foreign currency to BDC operators, while also putting an end to the granting of licenses for new BDC operations in the country.
The umbrella bank accused the BDCs of manipulating exchange rates and operating contrary to the agreement linking the sale of currencies to operators. A move that caused the exchange rate to collapse on the black market and an increase in volume traded at the NAFEX window.
What happened last year
On the last trading day of 2020, the exchange rate between the naira and the US dollar depreciated 4.12% to close at 410.25 N / $ 1, from 394 N to one dollar. The huge move, which indeed signaled where the official rate would be for the year.
A quick glance at the time series data shows that the Naira averaged against the US dollar at N 410.27 for the year 2021, closing yesterday at a record high of N / $ 435.
It does appear, however, that the market movement over the past two days suggests where the exchange rate would be in the coming year, as the exchange rate closed at N435 / $ 1 on Thursday, December 30, 2021 and maintained the rate today. The rate of N435 / $ 1 signals a movement similar to that which occurred the previous year.
The naira collapses 22.8% on the parallel market
In the parallel market, which is a more volatile market, the naira collapsed against the US dollar to close at N565 / $ 1 on December 31, 2021 against N / $ 460, which had been recorded at the end of the l ‘last year.
The market differential between the official market and the black market was N 49.75 last year. It has now widened to N140.74 as the growing demand for rare currencies puts the exchange rate at record highs in the unofficial market.
The parallel market exchange rate reached the level of N 500 / $ 1 in May 2021 and has since continued to sell above the threshold, even reaching N 575 per dollar.
What does that mean
The exchange rate depreciation in both markets reflects pressure on the local currency as the demand for dollars continues to increase at both levels and inflows remain minimal due to the recurrent negative trade balance, lower investment. foreigners and diaspora remittances.