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The official exchange rate in Nigeria is experiencing a significant divergence from the parallel market rates, with the gap widening.
This is mainly due to a high demand for the US dollar that exceeds the available supply.
Initially, the Central Bank of Nigeria (CBN) considered allowing free trade until the currency reached a market-relevant level.
However, there are concerns that the increased demand for foreign exchange could further depreciate the local currency.
Factors contributing to this issue include an influx of foreign currency from non-oil sources, such as remittances and tourism, into the black market, exacerbating the dollar shortage problem.
Nigeria’s failure to meet the OPEC quota and declining oil revenues also impact the value of the Naira.
Experts warn that the principle of willing buyer-seller foreign exchange trading could have negative short-term effects on the Nigerian economy.
The Naira remains under pressure as many Nigerians seek dollars for essential expenses, leading to a surge in prices.
Despite the unification of the Naira, foreign exchange reserves have been declining, reaching the lowest level in two years.
The stability of the Naira depends on various factors, including monetary and fiscal policies, political stability, security, and investor confidence.
To address these challenges, investments in education and skills development, as well as improvements in infrastructure, are crucial.
Nigeria needs a multifaceted approach to bridge the gap between official and parallel exchange rates, including measures to boost oil production, curb theft, and ensure a steady supply of foreign exchange.
