The official exchange rate of the Nigerian naira against the US dollar experienced a sharp decline, ending its three-day winning streak on Tuesday, March 5, 2024.
According to data published by the Financial Markets Dealers Quotations (FMDQ), quoted by Nairametrics, the naira fell by 4.26% to N1602.43 per US dollar, compared to N1534.19/$1 recorded previously.
This decline coincides with the announcement from the cryptocurrency trading platform Binance that it will cease trading activities involving the Nigerian currency. The move by Binance is expected to have contributed to the downward pressure on the naira in the forex market.
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According to data from the Nigeria Autonomous Foreign Exchange Market (NAFEM), where forex is officially traded, the domestic currency depreciated by 4.26% at the end of trading, closing at N1,602.43 to a dollar. This represents a loss of N68.24 compared to the previous day’s closing rate of N1,534.19.
The intraday high was recorded at N1,652.40/$1, while the intraday low was N1,450/$1, indicating a spread of N202.40/$1. Forex turnover at the close of trading stood at $291.78 million, representing a 63.26% increase compared to the previous day. Forex turnover has been averaging over $200 million in the past week, indicating a pickup in trading activity in the official market.
On the parallel market, the naira depreciated against the dollar, trading at N1,630/$1, reflecting a 1.84% decline compared to the previous day’s rate of N1,600. Similarly, the Great British Pound (GBP) depreciated by 7.32% to close at £1/N2050, while the naira weakened against the Euro by 0.57%, trading at N1750/EUR1.
Despite several policy measures introduced by the Central Bank of Nigeria (CBN) to address the forex crisis, the exchange rate between the naira and the dollar remains above N1,600/$1, marking a 43% depreciation in 2024. This places the naira as one of the worst-performing currencies in Sub-Saharan Africa.
Other implications of Binance’s exit
The repercussions of Binance’s exit extend far beyond immediate exchange rate fluctuations. Firstly, business leaders point out that it underlines the regulatory ambiguities surrounding cryptocurrency trading in Nigeria.
They note that the absence of clear regulatory frameworks has fostered a fragmented landscape, with certain platforms encountering restrictions or outright bans. Binance’s departure denotes the hurdles confronting cryptocurrency exchanges operating in Nigeria and raises questions about the government’s stance on digital currencies.
Moreover, there is concern that the departure of Binance could impede Nigeria’s efforts towards financial inclusion. Cryptocurrency platforms have played a pivotal role in expanding access to financial services, particularly for marginalized communities. By providing a platform for trading digital assets, these platforms have empowered individuals to participate in global financial markets and explore alternative investment opportunities.
The departure of a major player like Binance is said to threaten to stall progress toward financial inclusion and limit avenues for economic empowerment.
Additionally, economists warn that Binance’s exit may signal a loss of investor confidence in Nigeria’s economic prospects. The cryptocurrency market is highly responsive to regulatory developments and market conditions, and Binance’s departure could be interpreted as a vote of no confidence in the country’s regulatory environment and economic stability. This could dissuade other investors, both domestic and international, from entering the Nigerian market, exacerbating the challenges faced by the economy, they said.
Despite efforts by the Central Bank of Nigeria (CBN) to stabilize the forex market and bolster the naira, challenges persist, underpinning the need for comprehensive reforms and a cohesive regulatory framework.
Looking ahead, stakeholders have been urged to address the underlying factors driving currency volatility and investor uncertainty to cultivate a more resilient and inclusive financial ecosystem. This necessitates not only addressing regulatory gaps but also fostering transparency, accountability, and investor confidence.
Experts say that only through concerted efforts can Nigeria navigate the challenges posed by external shocks and chart a course toward sustainable economic growth and prosperity.