Naira slumps to new low of N1,043.09/$ in official market, raising anxieties ahead of new year

The Nigerian Naira reached a new low on Thursday, December 28th, 2023, closing at N1,043.09 per dollar in the official market.   

This represents a significant depreciation of 16.35% compared to its previous closing rate, marking a concerning trend just three days before 2024.  

This marks the second time the Naira has crossed the N1,000/$ threshold, signifying a significant depreciation and raising concerns about its impact on the economy.  

 The first time the Naira crossed the N1,000/$ threshold was on Friday, December 8th, 2023, when it reached a new historical low of N1,099.05 per dollar in the official market.   

This development represents a major turning point in the history of the Naira.  

Despite recent efforts by the Central Bank of Nigeria to bolster the foreign exchange market, the Naira’s downward trajectory continues, raising concerns over its impact on the upcoming New Year, traditionally characterized by increased consumer spending and reliance on imported goods.  

This development is likely to aggravate existing inflationary pressures and further strain household budgets, particularly for those reliant on imported goods. 

The implications for businesses, both large and small, are also significant, with potential increases in production costs and challenges in maintaining profitability.  

The domestic currency depreciated by 16.35% to close at N1,043.09 to a dollar at the close of business, data from the NAFEM where forex is officially traded, showed.      

• This represents an N170.5 loss or a 16.35% decline in the local currency compared to the N872.59 it closed on Wednesday.
• The intraday high recorded was N1235.65/$1, while the intraday low was N720/$1, representing a wide spread of N515.65/$1.
• According to data obtained from the official NAFEM window, forex turnover at the close of the trading was $83.63 million, representing a 34.63% decrease compared to the previous day.
• However, the naira appreciated marginally at the parallel forex market where forex is sold unofficially, the exchange rate appreciated by 1.07%, quoted at N1220/$1, while peer-to-peer traders quoted around N1202.66/$1.

The Central Bank of Nigeria (CBN) has extended the timeline for the issuance of letters of credit from 24 hours to five working days as the country continues to struggle with foreign exchange scarcity.   

In the approved 2020 service charter of the CBN, the timeline for the issuance and management of letters of credit was 24 hours.   

However, the newly approved 2023 service charter shows that the timeline is now five working days.   

Also, Nairametrics observed that the CBN extended the timeline for the registration of Form M and NXP from 24 hours to two working days.   

Earlier in June 2023, the CBN announced the unification of all segments of the forex market, collapsing all windows into a single official window for FX transactions.   

Although this was part of an effort to drive liquidity and stability in the forex market in Nigeria, it appears to have had a counter-effect, as it triggered further instability in the market.   

Nairametric reported that the naira lost nearly a fifth of its value as it traded at N951.2/$ on the official Investor and Exporter forex window on Wednesday.   

This has affected local and international trade, especially the import of goods and services in the country, with reports stating that foreign suppliers have started rejecting letters of credit from Nigerian businesses.   

For the importation of visible goods, a letter of credit is a mode of payment.  

As requested by the customer, the bank promises in writing to pay the exporter a certain sum within a certain time frame in return for goods, as long as the customer provides the bank with the proper paperwork.   

Also, to import goods denominated in foreign currency into Nigeria through the CBN Single window, all importers are required by law to fill out Form M.

All exporters are required by law to fill out the Nigeria Export Proceed Form (NXP) before sending goods outside of the country.   

The current forex crisis in the country likely triggered the increase in the timelines for letters of credits, Forms M and NXP in the newly approved service charter by the Governor of the CBN, Yemi Cardoso.   

According to a statement from the CBN, the service charter is a prerequisite of the Business Facilitation Act 2022 that is meant to drive the ease of doing business in Nigeria.   

It enables the CBN to comply with SERVICOM’s directions on improving customer service delivery.  

Expert reaction

Amid the rising free fall of the Naira both at the official Nigerian Foreign Exchange Market (NAFEM) and the unofficial market, financial experts had called on the Central Bank of Nigeria (CBN), to de-dollarise the economy by declaring any local transactions in the US dollars illegal.     

Speaking on strategies that can be used for the naira to regain strength, the founder and chief consultant of B. Adedipe Associates Limited (BAA Consult), Dr. Biodun Adedipe, said the CBN should stop government agencies from charging local operators and entities in US dollars.     

According to him, the sale of crude oil to local refineries should also be made in Naira rather than in US dollars.     

• Adedipe said: “CBN should deal transparently with participating banks at the I&E Window. De-dollarize the economy by declaring as illegal any local transactions in US dollars (sale of assets, rent/leases, and other services, including school fees and medical bills) and ensure that government agencies stop charging local operators and entities in US dollars (quite common in the maritime sector).
• “Other suggestions include the need to ensure that the sale of crude oil to local refineries should be made in Naira rather than dollars. “
• “President Bola Tinubu should have a direct engagement with bank CEOs to generate ideas and use moral suasion to enlist their support for the market reforms. Face the reality that unified exchange rates (not any different than floating the Naira) is a poor policy choice for a structurally defective and weak economy like ours,” he added.