The black market, sometimes called the unofficial market, comes around when people want to trade goods and services through means that are illegal or prohibited by governments. The exchange usually takes place secretly, hence the name.
Since they happen secretly, black market transactions are unrecorded and don’t reflect the country’s economic situation. They represent a whole sector of the economy that’s challenging to measure accurately. Anything can be traded in the black market, including illegal drugs, weapons, human organs, and, most commonly, foreign exchange.
This article will discuss the naira black market rates, why they exist, and the factors affecting them. First, let’s look at the black market exchange rates of the naira to the dollar, pound, euro, and other major currencies.
Naira Black Market Exchange Rates Today (October 1, 2023)
Naira Black Market Rate: What Does It Mean?
Black market foreign exchange rates are different from the officially given rate set by the government. A non-compliant attitude with the institutional guidelines or rules characterizes the market. The rates often occur when the official rate resembles the specific market conditions. Generally, black markets distort economic data since transactions are unrecorded.
The foreign exchange crisis of 1982, which resulted in extensive exchange controls, is thought to have contributed to Nigeria’s black forex market’s development. The parallel forex market inevitably developed to address the imbalance because the rules set rates and distributed foreign exchange thoughtfully in non-market ways.
The Central Bank of Nigeria(CBN) doesn’t recognize the black market rate, so every transaction is illegal. The black market rate usually differs from the CBN rate. The bank has directed citizens who wish to engage in forex to patronize their respective banks. Hence, using the black market rate is a punishable offense in the country.
Naira Black Market Rate: How It Works
The black market is the unofficial window in Nigeria where citizens deal with illegal foreign exchange transactions, such as seeking FX cash for business, corruption, or bribery. In this market, people can exchange naira for any strong foreign currency, including U. S dollars, British Pounds, euros, and Japanese Yen and vice versa.
The black market is becoming so increasingly acceptable there’s concern it will overshadow the official foreign exchange market. Rates are often determined by several factors but are mostly controlled by black market operators. They are people who make a living by exchanging money outside the purview of the Central Bank of Nigeria.
The difference between the black market rates and the official rate is known as Premium, where the black market operator derives their profits.
Why Does a Naira Black Market Exchange Rate Exist?
Naira’s black market exchange rate exists for many reasons. The most significant reason is when the CBN or government regulations on foreign exchange and capital outflows restrict access to the official market, inducing citizens to seek alternative or unofficial channels.
The supply mostly originates from the tourist sector, while demand comes from the citizens traveling abroad for vacation or study. However, since demand usually outweighs supply, suppliers will charge higher prices than the official rate to make a profit.
Generally, currency restrictions are particularly enforced to avoid crippling capital outflows during weak macroeconomic situations. They include limiting the frequency of currency trade, prohibiting residents from buying foreign securities or keeping bank accounts abroad, and outlawing the use and possession of foreign currencies.
Furthermore, the inflation crisis in Nigeria contributes to the weakening of the currency, making many consumers and business owners turn to use the US black market rates to buy products. Also black market exists because some citizens want to evade paying taxes on the transactions of goods or services.
Finally, as untrue as it may seem, some people need to be aware of the legal ways of buying foreign exchanges. They don’t know they are breaking some laws. The black market is almost the norm and is the usual go-to place to purchase foreign currency.
What Factors Affect Naira Black Market?
Since the shutdown of AbokiFX, a popular website that provides parallel market exchange rates over price-fixing allegations, it’s almost challenging to control the black market rate in Nigeria as buyers and sellers can’t find a reference point to determine the actual exchange rate.
The shutdown of this institution has created a significant void in the crucial area of forex transactions. The market is now ruined by a need for more transparency regarding how these rates are fixed.
Presently, numerous intermediaries and players determine the exchange rate at the black market, resulting in unusual exchange rate depreciation. Street traders and Abokis now decide it. Several players now use different rules to determine their exchange rate, resulting in price disparity.
Nigeria’s fluctuating exchange rates will probably continue until an official market where users can actively trade currency is established. While this might not directly mean a stable exchange rate market immediately, it is more likely to increase liquidity and traceability in the already-becoming riskier market.