Why is Dollar Rising Against Naira: If you’ve been wondering why the rate of Dollar to Naira black market is so high, and also why Naira is falling against Dollar in the official market, this post covers all the reasons
Currency exchange rates are constantly fluctuating, and understanding the reasons behind these fluctuations is crucial for anyone involved in international trade or travel.
In recent months, the US dollar has been rising against the Nigerian naira, which has led to a number of economic implications for Nigeria. In this article, we will explore the factors driving the rise of the dollar against the naira, as well as the potential implications for Nigeria’s economy.
Without wasting time, let’s dive straight in!
Overview of the USD/NGN Exchange Rate
Before answering “Why is dollar higher than naira”, let’s briefly review what the exchange rate is and what it represents. The exchange rate is the price of one currency in terms of another currency.
For example, if the USD/NGN exchange rate is 1 USD = 450 NGN, this means that one US dollar can be exchanged for 450 Nigerian naira. Exchange rates are determined by supply and demand in the foreign exchange market. These rates can be influenced by a variety of economic, political, and social factors.
It is worth knowing that the United State dollar exchange rates are of two types in Nigeria. This includes the official rate, and the black market rate, where the black market rate is usually higher than the official rate.
Historically, the Dollar to Naira exchange rate has been relatively stable, with the naira pegged to the dollar for many years. However, in 2016, the Central Bank of Nigeria (CBN) abandoned the naira’s fixed exchange rate in favour of a floating exchange rate, which allowed the market to determine the value of the naira.
Since then, the naira has experienced significant fluctuations in value, with the dollar rising against naira in recent months.
Read Also: How Political Instability Affects Dollar to Naira Exchange Rate
Why is Dollar Rising Against Naira?
There are several factors driving the rise of the dollar against the naira, or why naira is falling against dollar. These include:
1. High Demand for US Dollars
One key factor is the increase in demand for US dollars. Many investors and businesses around the world view the US dollar as a safe haven currency. This means that it is a reliable store of value during times of economic uncertainty.
This has led to a surge in demand for US dollars in recent months, which has driven up the exchange rate against other currencies like the naira.
2. Low Demand for Naira
Another factor why dollar is rising against naira is the decrease in demand for the Nigerian naira. Nigeria’s economy has been struggling in recent years due to a number of factors. These include low global oil prices, high inflation rates, and political instability.
These challenges have made the naira less attractive to foreign investors and have weakened demand for the currency.
3. Political Instability
Political instability in Nigeria has also played a role in the rise of the dollar against naira. Nigeria has been facing a number of security challenges, including attacks by Boko Haram and other extremist groups, as well as clashes between farmers and herders.
These challenges have created a sense of uncertainty in the country, which has further weakened demand for the naira.
4. The COVID-19 Pandemic
Seeking an obvious answer to “Why is dollar higher than naira?” The COVID-19 pandemic has also had a significant impact on Nigeria’s economy, which has contributed to the reason why dollar is stronger than naira.
The pandemic has led to a decline in global oil prices, which is a major source of revenue for Nigeria. Additionally, the pandemic has disrupted global supply chains and reduced demand for Nigerian exports, which has further weakened the naira.
5. Crude Oil Price
Finally, global oil prices also play a crucial role in determining the exchange rate between the dollar and the naira. It is no secret that Nigeria is a major oil producer. Due to that, changes in global oil prices can have a significant impact on the value of the naira.
When oil prices are high, Nigeria’s economy tends to do well, which strengthens demand for the naira. Conversely, when oil prices are low, Nigeria’s economy struggles, which weakens demand for the naira.
Implications of the Stronger Dollar for Nigeria
The rise of the dollar against naira has several implications for Nigeria’s economy. One of the most significant implications is that it makes imports more expensive for Nigerian businesses and consumers.
Nigeria relies heavily on imports for many essential goods, including food, machinery, and medical supplies. As the value of the naira decreases relative to the dollar, the cost of these imports increases, which can lead to higher prices and inflation.
The stronger dollar also makes it more difficult for Nigerian businesses to compete in international markets. When naira is lower than dollar, it becomes more expensive for Nigerian businesses to purchase foreign goods and services.
As a result, this can put them at a disadvantage relative to businesses in other countries. This can also make it harder for Nigerian businesses to export their products and expand their markets.
However, there may also be some potential positive effects of the stronger dollar for foreign investors. When the dollar is strong relative to other currencies, foreign investors may find it more attractive to invest in Nigerian businesses and assets.
This could potentially lead to an influx of foreign investment into Nigeria. As a result, this could help to boost the country’s economy in the long run.
Conclusion
The rise of dollar against naira has been driven by a variety of factors, including increased demand for US dollars, decreased demand for the Nigerian naira, political instability, the impact of COVID-19, and global oil prices.
While the stronger dollar may have some potential benefits for foreign investors, it also has several negative implications for Nigeria’s economy. These include higher import costs and increased difficulty for Nigerian businesses to compete in international markets.
As Nigeria’s economy continues to evolve and respond to these challenges, it will be important to closely monitor the exchange rate and its impact on the country’s economic performance.
We hope this post has offered you satisfactory answers to the question “Why is dollar higher than naira?”, “Why is naira weak against dollar?”, and also “Why is dollar rising against naira?”
Cheers!
