Throughout March 2024, the Nigerian Naira exhibited a remarkable surge against the US dollar, signaling a notable turnaround in Nigeria’s exchange rate policy. Official figures revealed that by the end of the month, the Naira closed at N1309/$1, reflecting a substantial increase from N1595.11/$1 recorded at the close of February 2024.
Policies and Strategies Yield Fruit
This surge, amounting to a 21.8% gain, underscores the effectiveness of various forex policies, strategies, and interventions implemented by the Central Bank of Nigeria (CBN). These measures were aimed at stabilizing and fortifying the national currency.
Parallel Market Resurgence
The parallel market witnessed an even more pronounced recovery, with the exchange rate improving from N1600/$1 in February to N1250/$1 in March, marking a significant 28% gain within a month. This substantial improvement highlights the efficacy of measures taken to bridge the gap between the official and unofficial currency markets.
Largest Gains in Over 5 Years
The gains observed in both the official and parallel markets represent the most substantial advancements seen in over five years. Prior to this, the exchange rate had been fixed at approximately N450/$1 for nearly two years and around N380/$1 between 2020 and early 2021.
Drivers of Naira’s Appreciation
Addressing Foreign Currency Speculation
The CBN initiated efforts to address suspected cases of excessive foreign currency speculation and hoarding by Nigerian banks. Through a circular titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” the CBN mandated that banks’ Net Open Position (NOP) must not exceed certain limits, effectively curbing speculative activities.
Clearance of Foreign Exchange Backlog
The apex bank announced the complete clearance of the valid foreign exchange backlog, settling obligations to bank customers amounting to $1.5 billion. This move effectively resolved the residual balance of the FX backlog, contributing to market stability.
Reforms in Retail Market
Policies such as allocating $20,000 to each Bureau De Change (BDC) at competitive rates and removing the exchange rate cap for International Money Transfer Operators played a pivotal role in strengthening the exchange rate in the retail market.
Crackdown on Cryptocurrency Platforms
The crackdown on the cryptocurrency platform, Binance, was highlighted as one of the most effective policies. Nigerian authorities took measures such as blocking web access to cryptocurrency exchanges and detaining Binance executives to address manipulation of the exchange rate system. Consequently, Binance removed the Naira for trading from its website, contributing to the stabilization of the currency market.