Nigeria Records 19-Month High in Dollar Supply as Naira Gains Ground in Official Market

Nigeria's foreign exchange market reached a significant milestone on February 3, 2024, with a record turnover of $844 million, marking a peak not seen in 19 months since June 2, 2023, according to data provided by FMDQ Securities Exchange. This surge in trading volume represents a notable increase compared to the $266 million exchanged on February 1, 2024.

The surge in activity can be attributed to recent reforms introduced by CBN Governor Olayemi Cardoso, aimed at bolstering the performance of the Naira against the US dollar. These reforms include strategies to enhance transparency in the official market and mandate banks to dispose of excess dollars. Additionally, the Central Bank lifted the cap on transactions by International Money Transfer Operators (IMTOs), leading to an improved supply of foreign exchange.

The effects of these reforms are evident in the strengthening of the Naira, which recently experienced its second devaluation by the Nigerian government in eight months. On Monday, February 5, 2024, the Naira appreciated to N1,419 per dollar, compared to N1,435 on Friday, February 2, 2023. However, the parallel market remains resistant to these changes, raising concerns about further divergence from the official market rate.

Meanwhile, Governor Cardoso highlighted the challenge posed by outstanding foreign exchange liabilities, amounting to $2.4 billion out of the reported $7 billion. He emphasized the need for validation of these claims to alleviate pressure on the Naira and reduce volatility in the FX market. A forensic audit by Deloitte revealed fraudulent claims within this outstanding amount, prompting the CBN to withhold payments for unvalidated requests.

In addition to addressing outstanding liabilities, Governor Cardoso addressed concerns about the bank's loan intervention schemes. He acknowledged the role of liquidity injections in driving economic distortions, including inflation, emphasizing the need for proper management of loans and economic advances.

In the official foreign exchange market, the Naira demonstrated further resilience against the US dollar on Monday, February 5, 2023. Data from FMDQ Securities indicated a 1.1% appreciation, with the Naira closing at N1,419.00/$1 compared to N1,435.53/$1 on the previous Friday. Furthermore, the Naira appreciated against the pound sterling, settling at N1,732.88/£1 compared to N1,790.71/£1 on Friday.