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Obtaining or buying a dollar entails getting it with naira, whereas selling a dollar entails exchanging it for naira at the going rate on the underground market.
For instance, you hear questions from the internet such as, “What is the dollar-to-naira black market exchange rate for today?”
Thus, one may hear statements such as “The dollar was purchased at ₦1250 from BDC Centers in Nigeria and is currently being sold for ₦1265.”
Because of their advantageous locations, Lagos and Abuja are renowned for having some of the best black market pricing in the nation. In Lagos, there are various exchangers, and the one that is called for you may have a different pricing.
It is impossible to talk about the dollar-naira relationship without taking a look at the significance of the US dollars.
The world’s most valuable currency is the US dollar, denoted by the sign $. The United States of America and other nations use it. The denominations available are $1, $5, $10, $20, $50, and $100. The following nations utilize dollars as their official currency:
United States of America
Ecuador
Australia
El Salvador
Canada
Zimbabwe
Panama
British Virgin Islands
Mexico
Puerto Rico
Palau
Jamaica
Marshall Islands
Fiji
Guam
Aruba
Guyana
U.S Virgin Islands
Some Facts About US Dollars
US dollar bills are composed of a unique combination of 25% linen and 75% cotton. This makes them far more resilient than a typical piece of paper, even after being folded numerous times. However, according to the Federal Reserve, a US dollar is only in circulation for around 6 years. This might result in a lot of folding over time, depending on how frequently the dollar is circulated!
Of the $1.54 trillion of US currency in circulation, Federal Reserve Notes make up 97% of the total.
The majority of $100 notes are held outside of the United States.
Twenty times more folds than a typical sheet of paper may be made with dollar bills—at least 8,000 folds total.
This is due to the unique, Crane & Co.-patented combination of 75% cotton and 25% linen used to make dollar bills.
The U.S. Bureau of Engraving and Printing creates 38 million notes every day, valued $541 million.
9.7 tons of ink are used daily by the two plants, which are situated in Fort Worth, Texas, and Washington, D.C.
The Federal Reserve ordered 7.1 billion new notes in 2017, totaling $209 billion.
Over 70% of these notes are utilized to replace ones that have been damaged.
Due to increased use, notes of lower denominations ($1, $5, and $10) typically depreciate faster.
Reasons for The Naira’s Poor Performance Against the Dollar
In light of the central bank’s backlog of accumulated demand for currency on the official market, people and businesses are essentially forced to turn to the underground market if they need dollars.
However, the previous few years have seen a decline in dollar inflows into Nigeria, primarily as a result of decreased crude oil exports (which make up over 90% of the nation’s export revenue) and decreased investment.
Also Read Explainer: Nigeria and Digital Currencies
In understanding the Dollar-Naira relationship, it is important to note the things highlighted below.
Investors celebrated Tinubu’s decision to abolish the currency controls because they thought a single exchange rate would make it simpler to obtain foreign currency, but that hasn’t happened yet.
Nigeria has past-due foreign exchange forwards worth around $7 billion that were purchased by corporations from regional banks. Then, banks paid back overseas credit lines using
This implies that while the banks are owed money, corporations are unable to obtain new letters of credit.
Without going via the central bank for bidding, banks finance short-term trade lines using their open net positions in foreign currencies. In other words, banks essentially “make the market” for dollars by offering two-way quotes for buying and selling the currency, thus establishing a fully operational foreign exchange market.
