Nigeria's naira falls on parallel market after dollar shortage

Nigeria’s naira fell against the dollar on the parallel market, widening the gap with the official rate, after a halt in foreign currency supply to local bureaux de change led to a scramble for the greenback.

The unit declined 1.1% to 1,643 naira a dollar on Friday, from 1,625 naira the previous day on street trading, according to Abubakar Muhammed, chief executive of Forward Marketing Bureau de Change Ltd. in Lagos, which compiles the data. The spread with the official rate widened to about 2.7%, according to FMDQ data compiled by Bloomberg.

Africa’s most populous nation is battling an acute scarcity of foreign exchange, resulting in multiple exchange rates and the exit of overseas investors. President Bola Tinubu on taking office last year allowed the naira to trade freely in an attempt to narrow the exchange-rate gap and lure back inflows.

Policy changes including clearing a backlog of unmet dollar demands and dollar sales to bureau de change operators helped to bridge the gap between the two rates to between 1% and 2% before this week’s spike. That compares with a spread of about 20% in May between the official and parallel rates.

The Abuja-based central bank sells dollars to exchange bureaux periodically to help cater to demand from retail clients, such as for personal travel and medical expenses abroad. Those sales are also part of the bid to moderate prices quoted on the street and narrow the spread with the official rate accessed through banks.

The latest dollar sale to money changers in mid-July has been depleted, again putting pressure on the naira, according to Aminu Gwadabe, president of the Association of Bureaux de Change Operators of Nigeria, the umbrella body for retail currency traders.

The central bank should “resume dollar sales to checkmate the worrisome high price volatility,” Gwadabe said by phone. “The demand for invisible transactions like school fees, travel allowances and medical expenses is very high as students are returning to school,” he said.