Having a national currency makes pursuing national economic goals easier. It is also effective in dealing with emergencies, and it protects citizens from any issues associated with being compelled to utilize foreign currencies. On top of that, it is a component of sovereignty.
The foreign exchange market has risen to become the world’s largest financial market. Forex trading provides a marketplace for the purchase and sale of currencies. This, in turn, facilitates international trade and investment and promotes economic growth. The Nigerian Naira (NGN) and the Nigerian Forex market have evolved significantly over the years.
In this article, we are going to look at the evolution of the Naira and the Forex market in Nigeria. This will probably tell us why Nigerian trusted brokers are seeing a rise in clients from this country.
The Nigerian Naira (NGN)
The Pound Sterling was replaced as the national currency of Nigeria by the Nigerian Naira on January 1, 1973. This was part of the government’s decision to switch from the metric system to the decimal system. The one Naira replaced the previous primary unit of currency, the £1, while the kobo, which could be multiplied by 100 to make one naira, remained the minor unit. A new twenty Naira (20 Naira) banknote was introduced on February 11th, 1977. Due to the expanding economy, the preference for cash transactions, and the demand for convenience, it was the highest denomination introduced at the time. Changes still went on and now the highest denomination is 1000 Naira (₦1000).
To make it simple to identify authentic notes, the Naira banknotes are safeguarded by a number of security mechanisms. The raised print, the security thread, and the watermark are unique characteristics that can be detected by touch and visibility. On the front and back of the notes, there are further embossed details including the portrait, text, and denominational digits. Raised prints add texture, and the Central Bank of Nigeria (CBN) is printed in tiny letters on both sides of the security thread, which normally seems to be broken but is not when held up to the light.
In reaction to economic pressures, the Naira has seen severe exchange rate volatility, resulting in several devaluations. These depreciations were frequently used to address trade imbalances and maintain external competitiveness. May 2023 saw an average Nigerian NGN/USD exchange rate of 460.702 NGN per USD, up from the previous month’s 460.418. This 460.702 in May 2023 was an all-time high, with 0.530 the all-time low in November 1980.
Because of the limits of the official foreign currency market, a parallel (black market) for foreign exchange developed, with the value of the Naira determined by supply and demand. In contrast to official rates, parallel market rates frequently varied. Nigeria’s economy is primarily dependent on money from oil exports. The Naira’s currency rate has been considerably impacted by changes in the price of oil because Nigeria depends heavily on oil exports.
According to Reuters on July 20, Nigeria’s Naira traded at a record low of 860 per US Dollar on the black market on 20th July 2023, sliding below the country’s official rate a month after the currency was weakened and ahead of a central bank policy meeting the following week.
Evolution of the Forex Market in Nigeria
Due to stringent rules and foreign exchange controls, the Nigerian Forex market initially saw just a small amount of involvement. Access to foreign exchange was significantly regulated by the central bank. The creation of the Autonomous Foreign Exchange Market (AFEM), which allowed the CBN to sell foreign currency to end users through a select group of authorized dealers at a market-determined exchange rate, liberalized the foreign exchange market in 1995. The Nigerian government started to loosen restrictions on foreign exchange, allowing for more activity on the Forex market. The purpose of the action was to draw in foreign investment and lessen the impact of the parallel market.
Retail Forex Trading
Retail Forex trading became more accessible to individual traders as technology advanced. Nigerians exchange foreign currencies on platforms made available by online forex brokers. They are able to access international financial markets and diversify their investment portfolios through forex and cryptocurrency trading.
Forex trading is entirely legal and has a long history in Nigeria. The CBN and the Nigerian SEC are the two organizations responsible for oversight over the forex market in Nigeria. These two organizations are in charge of supervising the financial sector and making sure the market is fair to all participants, even though they are yet to regulate any forex brokers.
Exchange Rate Reforms
To solve the multiple exchange rate system and align rates, the Nigerian government and central bank have implemented numerous exchange rate changes. The creation of the Investors’ and Exporters’ (I&E) Forex Window in 2017 was one of the important developments. The Willing Buyer, Willing Seller model would be reintroduced at the I&E window. Based on the rules given in the circular dated April 21, 2017, this model allows qualifying transactions to access foreign exchange. Under this paradigm, using market forces to establish exchange rates was supposed to improve transparency and promote fair pricing in the forex market.
The Naira’s value and Nigeria’s foreign exchange market continue to be shaped by the actions of the Nigerian government, global economic trends, and advancements in technology. The foreign exchange market in Nigeria has been growing. As the nation’s economy expands, it has become a vital hub for international forex trading, and investors embrace the arrival of cutting-edge technologies for online trading. Nigeria’s forex market is anticipated to expand due to increased interest. Additionally, more financial institutions are putting an emphasis on finding foreign exchange products and services that best suit the demands of their clients.
Nigeria’s need for foreign currency is rising. The nation is quickly developing into a hotspot for international forex trading due to the entry of new investors and traders.