As the Central Bank of Nigeria continues to clear the outstanding FX backlog, the Naira continues to swing above and below the $1/₦1,000 band in both the parallel and official market, while the Bitcoin price has been rallying above $36,000—its previous May 2022 all-time high.
After the Nigerian presidential election earlier this year, one of the many priorities for the federal government has been the unification of the official Naira foreign exchange market rates with the parallel market rates to boost the Nigerian economy’s competitiveness on the world stage.
Following the Naira redesign debacle, fuel subsidy removal, and subsequent reshuffling of the CBN leadership, the Nigerian Federal Government refocused its attention on its stated goal of currency rate unification.
In June earlier this year, the CBN announced numerous changes to the operations of the Nigerian FX market to ease the government control of the Naira and allow for it to become free-floating—i.e., allowing for the currency exchange rate to be determined exclusively by market forces, without CBN intervention.
The US Dollar-Naira FX Swings
In the same month as the CBN’s announcements, the Naira closed at 1$/₦462 on the 9th and 1$/₦769.88 on the 30th, closing the divergence with the parallel market rate to within less than a percent. However, over the last five months, the difference between the parallel and official rates has been volatile, peaking at $1/₦1,310 on the parallel market compared to $1/909 on the official market in October.
The recent key drivers behind the exchange rate volatility have been the high oil prices, the US dollar shortage, and the CBN’s efforts to clear outstanding FX backlogs estimated at $6.7 billion in its attempt to stabilize the Naira.
It isn’t all gloom and doom though, as the CBN cleared foreign currency contracts with an unspecified number of banks earlier in November, dropping the US Dollar-Naira rate below ₦1,000 in the official market. Additionally, according to the Nigerian Finance Minister, Wale Edun, in the coming weeks, there is an expectation of inflows worth $10 billion, which would help clear the outstanding FX backlogs.
As of writing, the current USD-NGN rate is $1/₦1,129.096 on the parallel market and $1/₦827 in the official market.
The Bitcoin Price Rally in Nigeria
Amid all the Naira FX troubles, global events underscored by the US Fed rate hikes, and anticipation of a Bitcoin spot ETF approval from the US Securities and Exchange Commission, in conjunction with local economic factors, Bitcoin has been on a positive rally over the last few weeks in Nigeria, with one bitcoin currently trading at ₦40,948,199.19, and peaked at ₦42,537,942.81 a few weeks ago at an all-time high YTD.
Nigerians at all stages, continue to flock to stablecoins (predominantly USDT) and increasingly bitcoin, not only as a fiscal response to the Naira FX situation but also in anticipation of the bitcoin halving in April, which is believed to be followed by an even higher rally in bitcoin’s price in the next year or two.
As we approach 2024, given the economic conditions Nigerians have had to endure in 2023, regardless of the developments from the bitcoin price action to the CBN’s measures to stabilize the Naira, one thing remains clear: bitcoin continues to be a far more attractive alternative and lifeline for many Nigerians.