Business

Naira Strengthens Sharply Against Dollar as Sellers Struggle with Low Demand

Published by Tope Fakinlede on December 7th, 2024.

Naira Strengthens Sharply Against Dollar as Sellers Struggle with Low Demand

Naira and Dollars

The naira continued its strong appreciation against the dollar on the official FX market, closing at N1,535/$1 on Friday, December 6, 2024, marking a notable rise following a series of gains.

This surge follows the Central Bank of Nigeria’s (CBN) launch of the Enhanced Foreign Exchange Market System (EFEMS), which has helped drive the naira’s strengthening over the past three days. The highest rate observed during Friday’s trading was N1,575/$1, while the lowest was N1,510/$1, with the average rate standing at N1,533.

In the parallel (black) market, the naira’s value dropped significantly, reaching as low as N1,570/$1, amid an unusual market situation where more sellers struggled to find buyers. According to insiders, “No one wanted to buy dollars,” signaling a shift in market sentiment.

Some sellers were willing to offload their dollars at rates as low as N1,500/$1, while certain cryptocurrency platforms even facilitated exchanges of stablecoins for naira at rates below N1,500/$1 through peer-to-peer (P2P) networks.

Official Market Shows Continued Gains

The Naira’s closing rate of N1,535/$1 represents a strong showing, adding to its recent momentum since the introduction of the EFEMS system. This reflects increasing demand for the naira in the official market, with Friday’s closing rate being an improvement from Thursday’s N1,567/$1.

In the parallel market, rates dropped further, with sellers reporting exchanges as low as N1,500/$1 for certain transactions. The widening gap between the official and parallel market rates has now narrowed to less than N35, or around 2.3%, indicating growing alignment between both markets.

Platforms such as Bamboo and Trove reported conversion rates of N1,549.50/$1 and N1,629.49/$1, respectively, indicating a slight lag in comparison to official and black market rates.

As for cryptocurrency markets, Bitcoin was trading at $101,000 as of 8 p.m. Nigerian time, with altcoins also showing signs of gains in anticipation of a potential Trump presidency.

Shifting Dynamics in the Parallel Market

The naira’s recent strength in the parallel market suggests that EFEMS is influencing informal forex operations. With fewer buyers hoarding dollars and more sellers eager to offload, the naira’s value appears to be improving in both official and black markets.

Market experts see this shift as indicative of a broader change in sentiment, with businesses and individuals increasingly inclined to hold naira instead of dollars.

EFEMS Enhancing Transparency in Forex Market

The launch of EFEMS by the CBN has contributed to greater transparency and efficiency in Nigeria’s forex market. By consolidating all FX transactions into a single platform, the system has delivered consistent gains for the naira over the past four days, reducing the gap between official and parallel market rates.

The system ensures that all forex transactions are priced transparently, making exchange rates more accessible and helping curb speculative activity. As a result, confidence in the naira has strengthened, and the market is seeing reduced volatility.