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Tuesday, 23 February 2016

Why CBN's Naira Exchange Rate Is Not The Same With Parallel Market Exchange Rate


The sudden depreciation of Naira have made people to be engaged in various arguments about the official exchange rate of the currency. 

The Central Central Bank of Nigeria is in charge of monetary policy in the country. The bank has a Monetary Policy Committee which is headed by the Governor of the CBN. They formulate the monetary and credit policy. They are responsible for the fixed rate of Naira exchange in the foreign market. 

The changes in the Nigerian Foreign Exchange Market resulted in a licence being granted to Bureaux de Change in 1989 to accord access to small users of foreign exchange and enlarge the officially recognised foreign exchange market. 

Exchange rates in the Bureaux de Change are market determined. A parallel market for foreign exchange has been in existence since the exchange control era. It has been established that scarcity in the official sector and bureaucratic procedures necessitated the growth and development of the parallel market.

CBN exchange rate is fixed based on the monetary policy in the country, while parallel market exchange rate is totally determined by the activities carried out in the foreign market. 

The exchange rate in the parallel market can stabilise if the rate of importation does not exceed the rate of exportation of goods and services, and the cost of produces being balanced.

CBN exchange rate for Naira to Dollar as at today, 23th February, 2016 is N197 to $1. While the exchange rate in the parallel market is N365 to $1. The devaluation of Naira in the parallel market is caused by the high importation of goods and services in the country, and the fall in the price of crude oil which is the country's most exported product.

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