Naira Gains as Dollar Falls to ₦1,375 in Parallel Market
The naira has strengthened against the US dollar in both Nigeria’s official and parallel foreign exchange markets, with the dollar falling to ₦1,375 in the parallel market.
The latest movement means the naira gained ₦8 against the dollar in the parallel market, where it traded at ₦1,383 on Tuesday.
In the official market, the naira also appreciated, with the dollar quoted at ₦1,328 at the Nigerian Foreign Exchange Market (NFEM), compared with ₦1,331 previously.
Data from the Central Bank of Nigeria (CBN) showed that the NFEM rate fell by ₦3, while activity in the market increased sharply. Turnover rose by 181.5% to $279.2 million from $99.2 million in the previous session.
But what does the latest movement mean for Nigerians, and does a stronger naira immediately translate into cheaper goods and services?
What happened to the naira?
The latest figures show gains in both major segments of Nigeria’s foreign exchange market.
In the parallel market, the dollar moved from ₦1,383 to ₦1,375. This means someone buying $1,000 at the reported rate would need about ₦1.375 million, compared with ₦1.383 million at the previous rate.
At the NFEM, the dollar moved from ₦1,331 to ₦1,328.
The difference between the two rates therefore narrowed to ₦47 per dollar, compared with ₦52 previously.
The gap is important because it shows how closely the parallel-market price is tracking the rate in the official market.
What is the official exchange rate?
The official rate referred to in the latest figures is the NFEM rate.
The CBN says the NFEM is Nigeria’s official foreign exchange market. Its published exchange-rate data describes the NFEM rate as being derived from the volume-weighted average and serving as the official exchange rate for the day.
The CBN’s foreign exchange framework has evolved over the years. In 2023, the bank adopted a willing-buyer, willing-seller model and consolidated previously segmented foreign exchange windows into the NFEM framework.
The CBN says the reform was intended to improve price discovery, transparency and efficiency in the foreign exchange market.
This is the rate used as the official reference for eligible foreign exchange transactions, although the actual rate available to an individual or business can vary depending on the transaction and provider.
So why is the parallel-market rate different?
The parallel market is an informal foreign exchange market operating outside the official banking and authorised-dealer channels.
The CBN’s history of Nigeria’s foreign exchange market shows that a parallel market developed during periods when demand for foreign exchange exceeded the supply available through official channels.
Even with the reforms that have unified the official market, rates can still differ between the NFEM and informal market because foreign exchange transactions are influenced by demand, supply, liquidity and prevailing market conditions.
In simple terms, the price of the dollar changes depending on how much foreign currency is available and how much people and businesses are trying to buy.
When dollar supply improves relative to demand, pressure on the naira can ease. When demand for dollars rises faster than available supply, the naira can come under pressure.
Why did the gap between both rates narrow?
The latest figures show that the difference between the reported parallel-market rate and NFEM rate fell from ₦52 to ₦47 per dollar.
That happened because the naira strengthened in both markets, but the parallel-market rate recorded the larger movement.
NFEM turnover also increased substantially during the period, rising from $99.2 million to $279.2 million. Higher transaction activity does not by itself prove what caused the naira’s appreciation, but it indicates significantly more foreign exchange was traded through the official market during the session.
Nigeria’s external reserves also stood at $54.674 billion as of September 17, according to the Vanguard report citing the latest available figures.
These developments provide important context for the current exchange-rate movement, but a single day’s appreciation does not establish a permanent change in the value of the naira.
Does a stronger naira mean cheaper goods?
Not necessarily — and this is one of the most important things to understand about the latest exchange-rate movement.
A lower dollar rate can reduce the naira cost of imported goods, raw materials, equipment and other products priced in foreign currency.
For example, if an importer needs $10,000, the foreign exchange cost at ₦1,375 per dollar would be ₦13.75 million.
At ₦1,383 per dollar, the same $10,000 would cost ₦13.83 million.
That is a difference of ₦80,000 on the dollar purchase alone.
However, the final price paid by consumers depends on much more than the exchange rate. Importers also face shipping costs, customs duties, taxes, financing costs, storage, distribution expenses and other operating costs.
This means a stronger naira can reduce one component of an importer’s costs without automatically causing the retail price of the finished product to fall by the same amount.
What does the movement mean for Nigerians buying dollars?
For Nigerians who need dollars for legitimate transactions, a lower dollar rate means fewer naira are required to purchase the same amount of US currency, all other things being equal.
This can matter to people paying for international education, travelling abroad, paying eligible medical expenses or settling other legitimate foreign-currency obligations.
The CBN says eligible transactions such as medical needs, school fees, business travel allowance and personal travel allowance can be processed through authorised dealers in the NFEM.
However, Nigerians should not assume that the published NFEM rate is necessarily the exact rate they will receive from a bank or other authorised provider. The actual rate can vary according to the institution, transaction and prevailing market conditions.
What about Nigerians receiving dollars from abroad?
The movement can have the opposite effect on people who receive money in dollars and convert it into naira.
When the dollar is worth fewer naira, a recipient converting the same amount of dollars receives fewer naira than they would at a higher dollar rate.
For example, $1,000 converted at ₦1,375 per dollar produces ₦1.375 million.
At ₦1,383 per dollar, the same $1,000 would produce ₦1.383 million.
So while a stronger naira can make imported foreign currency cheaper for buyers, it can reduce the naira value received by someone converting dollar income or remittances.
Does this mean the naira will keep appreciating?
The latest figures show a positive movement for the naira, but one trading session cannot establish a long-term trend.
Exchange rates can change as foreign exchange supply and demand change.
The CBN’s current framework allows market forces to play a major role in determining the value of the naira, while the bank can also intervene in the foreign exchange market when necessary.
For that reason, the more significant question is whether the naira can maintain its recent gains across several trading sessions.
Investors, importers, businesses and consumers will therefore be watching the NFEM rate, foreign exchange turnover, dollar supply and the gap between the official and parallel markets.
For now, the latest figures show the dollar at about ₦1,328 in the NFEM and ₦1,375 in the parallel market, leaving a ₦47 difference between the two reported rates.
What the latest rate means in simple terms
The latest movement can be summed up this way:
- Parallel market: Dollar fell from ₦1,383 to ₦1,375.
- NFEM: Dollar fell from ₦1,331 to ₦1,328.
- Parallel-NFEM gap: Narrowed from ₦52 to ₦47.
- NFEM turnover: Rose 181.5% to $279.2 million.
- External reserves: Stood at $54.674 billion as of September 17.
- For dollar buyers: The lower rate means fewer naira are needed for the same dollar amount, all else equal.
- For dollar earners: The same dollar amount converts into fewer naira when the dollar rate falls.
- For consumers: A stronger naira can reduce import costs, but it does not automatically mean immediate lower prices.
FAQs
What is the dollar-to-naira rate in the parallel market?
The latest reported rate is ₦1,375 per dollar.
What is the official dollar-to-naira rate?
The latest reported NFEM rate is ₦1,328 per dollar.
Why is the parallel-market rate different from the NFEM rate?
The two rates can differ because foreign exchange prices respond to demand, supply, liquidity and market conditions in the respective channels.
Does a stronger naira mean prices will fall immediately?
No. A stronger naira can reduce the naira cost of imported goods and inputs, but other costs can keep retail prices high.
Who benefits when the naira appreciates?
People and businesses that need to buy dollars can potentially spend fewer naira, while Nigerians earning or receiving dollars may get fewer naira when converting the same dollar amount.
Will the naira continue to appreciate?
The latest movement alone cannot establish a sustained trend. Future exchange rates will depend on foreign exchange supply, demand, liquidity and other market conditions.