Olayemi Michael Cardoso, Governor of Central Bank of Nigeria
There is too much demand for the dollar but not enough supply to appease the thirsty forex market. The scarcity of dollar has given a big blow to the value of the already weaken naira and the freefall of naira appears endless. According to data coming from parallel market and abokiFX, the online trading platform, yesterday naira rate touched between N1, 290 – N1, 300 to the dollar. If the nose-diving of naira goes unchecked, by the end of the year it may be touching nearly N2000 to the dollar.
Forces of Demand and Supply
The Dollar demand and supply is determined by the market forces because naira is allowed to float without any fixed exchange rate. The relative weakness of Nigeria’s entire economy does not seem favorable to the status quo. The GDP is shrinking and foreign reserve is dwindling due to lack of reasonable export to furnish liquidity to the market.
The crux of the matter is the demand for dollars are extremely high among Nigerians. Nigeria does not generate enough foreign exchange to satiate local consumption. Therefore the demand for dollar drives the value of Naira making it ubiquitous and weak. Nigerian source of dollars and foreign exchange comes only from the export of oil and its overdependence for foreign exchange from oil.
Naira fixed peg has been removed by Tinubu administration, and naira subjected to market force of demand and supply. “But eliminating the peg in June led to the biggest single-day fall in the currency’s history. Partly as a result, inflation last month soared to 26.7 per cent, the highest level in two decades.”
The hard reality is that the country’s foreign exchange is chiefly derived from oil revenues. And oil accounts for almost 80 percent of the foreign revenue and this must change if a stable value of naira is to be maintained and sustained. The herculean task for the policy makers and the government is to find ways to supplement crude oil export with arrays of meaningful exports of goods and services to offshoot the slavishly
dependence on oil.