The spread between the official and unofficial rates has now exceeded 88 per cent, the largest ever gap, according to Bloomberg report.
The naira plunged to a new low against the dollar on the unofficial market, trading at N850/$ following persistent scarcity of the dollars.
The naira is, however, stable at the official market, where it exchanges at N439.88/$, data from the Central Bank of Nigeria (CBN) website shows.
The local currency, which closed last week at N772/$ at the parallel market, has come under intense pressure with more depositors converting cash to dollar to protect their assets.
In emailed note to investors, Forex Dealer with AZA Finance, Kenga Kalu, said Nigerians are rushing to buy dollars after the CBN announced plans to redesign high value Naira notes by mid-December.
“The spread between the official and unofficial rates is now more than 88 per cent, the largest ever gap, according to Bloomberg. The note redesign is intended to mop up excess funds, reduce counterfeit notes and hamper ransom payments from terrorists and kidnappers,” Kalu said.
During the announcement, CBN Governor, Godwin Emefiele, said old bank notes- N200, N500 and N1,000 denominations- still in circulation by the end of January next year will be void.
The CBN expressed concern about the amount of currency in circulation outside of the banking system, reducing the efficacy of its policy levers.
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Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, attributed the naira’s continued decline to heightened forex supply shortage, demand pressure and rationing. He said naira rates convergence would require adoption of a full floating exchange rate system determined by the forces of demand and supply.
Likewise, the International Monetary Fund (IMF) said exchange rate rigidities have constrained the economy’s ability to absorb external shocks.
The IMF insisted that restrictions on access to foreign exchange for certain categories of goods, and multiple exchange rates create distortions in both private and public sectors decision making. They discourage long-term investment, encourage smuggling and provide avenues for corruption.
Moving forward, the Fund suggested removal of foreign exchange restrictions, and a full exchange rate unification, in line with the authorities’ Economic Recovery and Growth Plan (ERGP), will help keep the parallel market premium low in a more sustained manner.
It, therefore, called for unified exchange rate for the naira to promote growth and attractive foreign capital.
According to the IMF, foreign exchange backlog and shortages are intensifying Balance of Payment (BoP) pressures insisting that exchange rate unification was imperative to reduce BoP risks. It said that fiscal deficit will stay elevated in the medium term, while additional domestic revenue mobilisation is required to reduce fiscal risks.