Nigeria’s Finance Minister, Wale Edun, has “said up to $6.8 billion of overdue forward payments in the foreign exchange market need to be addressed before the naira stabilizes”. He dropped the key words: “The issue we have now is that the market is not liquid enough”. Recall my position when the nation floated the currency. I posited that floating Naira without working for parity on demand and supply of US dollars is hopeless in saving Naira.
Nigeria’s Finance Minister, Adebayo Olawale Edun, has attributed the naira’s abysmal decline to the approximately $6.8 billion in overdue forward payments in the foreign exchange market, emphasizing that addressing this issue is crucial for the stabilization of the local currency.
According to Bloomberg, Edun stated that resolving these outstanding contracts would not only strengthen the naira but also facilitate additional foreign exchange inflows.
The naira’s decline has been attributed to the illiquidity across Nigeria’s FX markets – especially in the Investor & Exporter window. The naira reportedly reached the N1,000/$1 threshold in the parallel market on Thursday, as supplies from the central bank to the FX market tanks amid rising demand.
This is a vicious circle when you see that the new official rate (import export window, ~ N785/$) is now far away from the black market (N980/$) demonstrating a highly imperfect market, cushioned on the asymmetry and imbalances on demand and supply positions.
Expect the government to re-introduce fuel subsidies (directly, no backdoor) even as it brings a quasi-official FX rate back (outside the IE window). In June 2023, I wrote: “In his O’ Level textbook on economics, AO Lawal explained demand and supply and the movement of price on the demand-supply curve. If I apply what he explained in that book, floating naira with no capacity to earn USD dollars will kill Naira, because there is an asymmetric imbalance on demand and supply of USD in the Willing Buyer, Willing Seller nexus. In other words, two people may each have $100 to sell while twenty people want to buy each $100. If you do not close that number to near parity, the equilibrium point will keep shifting and I do not see how Naira will stabilize because demand outweighs supply here”
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That imbalance is that $6.8 billion Mr Edun is talking about. Until we fix it, no better days for Naira.
Comment on Feed
Comment 1: It’s still basic demand and supply.
How can we have more supply of dollars? Earn it!
How can you earn it? Export more!
How can you export more? Start from commercial agric through state-led farm settlements(ekiti has a big one in Orin-ekiti built in the 80s just sitting there wasting away).
Also, fix your power generation and distribution.
Improve the rail capacity to transport goods across the country.
When the teeming youth population is gainfully employed in jobs, and goods are being exported, we won’t even talk about the exchange rate.
Also, the dollarization of the economy is illegal. Enforce this and see the demand for dollar decrease.
Economic nationalism must be the chosen ideology. Nigeria must aim for self-sufficiency(autarky).
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