The Naira to Dollar exchange rate is at the core of nearly economic statistics that define the Nigerian economy. With the proceeds from the sale of crude oil making up close to ninety percent of Federal revenues, Nigeria is assured of the supply of dollars to the local economy.
Nigerians are all too familiar with the incessant sparring that goes on between the Naira to Dollar exchange rate. This seemingly endless confrontation between the two currencies is underscored by the fact that Nigeria runs an import-driven economy; so the weakness of the one currency against the other, is felt either painfully or beneficially by the average Nigerian.
When you need to calculate the Naira to Dollar Exchange rates, you can either work with the rates set in the official interbank market by the Central Bank of Nigeria or with the rates obtained on the parallel market (usually given by Bureau de Changes, BDCs).
The following rates depict what the Naira is exchanging to the 1 Dollar over the last couple of days to the present time at the Official Interbank Market:
Date Buying Selling
6/4/2017 ₦ 305.2 ₦306.2
5/4/2017 ₦305.2 ₦306.2
4/4/2017 ₦305.25 ₦306.2
The following are the Naira to Dollar Exchange rates today at the black market over the last couple of days:
Date Buying Selling Volatility
7/04/2017 ₦390 ₦404 low
6/04/2017 ₦380 ₦398 medium
5/04/2017 ₦380 ₦398 medium
You must have noticed the spread in margins between the Naira to Dollar Exchange rates for the CBN and the BDCs.
This spread is predicated by a number of factors; these factors determine the Naira to Dollar Exchange rates and are responsible for whether the Nigerian economy is experiencing a recession or an expansion in the economy. These factors include the following:
a. Availability of US Dollars
The Naira to USD exchange rate is dependent on the amount of dollars that is available in the treasury of the Federal Government, through the Central Bank of Nigeria (CBN). As an economy dependent on revenues accrued from the sale of crude oil, any change in the price and volatility in the oil market will significantly impact on the Naira to Dollar Exchange rate regime.
b. Official Fiscal and Monetary policies of the CBN
The Government could decide to allow market forces of demand and supply determine the Naira to Dollar Exchange rate or it could intervene with fiscal/monetary policies. In the case of the former, you will find that the Naira will be permitted to float until it is valued at a price to the dollar that meets the minimum expectations of the foreign exchange market.
On the other hand, the CBN could decide to defend the value of the Naira by supplying pre-determined sums in dollars to take care of the foreign exchange requests of the market. In this case, the Naira is touted to be artificially priced against the Dollar. This factor can be sustained for as long as the revenue earnings flow of the Government is positive.
Effect of Naira to Dollar Exchange rate today on Imports/Exports
It should not come as surprise that the group that keenly follows the trends in the foreign exchange market, especially with regard to the Naira /Dollar Exchange rate, is the Importers/Exporters.
For the former, a Naira to Dollar Exchange rate that is in favour of the Dollar, will translate to a steep rise in the cost of imports. This cost will subsequently be translated to the final consumer, who will pay for the charges borne as import duties and other incident costs.
On the other hand, for exporters who receive their export proceeds in US Dollars, a weak naira will mean that they receive more profits from transacting such export activities.
Effect of Naira to Dollar Exchange rate today on Standard of Living
With a Naira to Dollar exchange rate today that favours the position of the Dollar, you will find that one of the immediate effects is a steep rise in the cost of goods and services. Even businesses that do not engage directly with the foreign exchange market, will harp on the negative multiplier effect that the Naira to Dollar exchange rate today has on their operations; hence they resort to passing along the costs to customers/clients.
Effect of Naira to Dollar Rate today on Studying Abroad
Amongst the many demands for foreign currencies, is the need for Nigerians to settle tuition and other fees for foreign institutions of higher learning. Recently the CBN came up with a policy directive that provides consideration for Nigerians, home and abroad, to source dollars through banks and other financial institutions, as an exchange rate fixed by the CBN for educational purposes. This is one of the interventionist measures highlighted earlier in this article.
When this measure is not in place and the market forces of demand and supply take effect, students seeking to settle their tuition and other living expenses may have to part with more Naira in exchange for the Dollar, if the Naira to Dollar Exchange rate is not in favour of the Naira.