In short
- Banks traded $179.58 million with each other on September 30, up 123% from $80.58 million the previous trading day.
- The naira closed at ₦1,329.50 to the dollar, compared with ₦1,331 on September 29.
- The increase came from more transactions rather than a few large ones, with 126 deals compared with 94.
- Higher turnover means more dollars changed hands between banks. That is not the same as new dollars arriving in Nigeria.
- Nigeria's external reserves reached $54.86 billion on September 24, an increase of $9.29 billion since January 2.
Banks traded $179.58 million with each other on September 30, more than twice the $80.58 million of the day before. The naira strengthened slightly at the same time, closing at ₦1,329.50 to the dollar compared with ₦1,331.
Interbank foreign exchange turnover is the value of the dollars banks traded with each other during the day. A high figure is often taken as proof that more foreign currency arrived in Nigeria. It records the trading, and the dollars traded can be dollars the banks already kept.
What banks trade with each other
The Nigerian Foreign Exchange Market, or NFEM, is the official market where authorised dealers, mostly banks, buy and sell foreign currencies. It operates on a willing-buyer, willing-seller basis, so the rate moves with the prices buyers and sellers accept.
Banks take part in this market for their customers and for themselves. A business importing goods needs dollars to pay a supplier abroad. Someone receiving dollars from a client overseas wants naira. Banks handle both. A bank that sells its customers more dollars than it buys from them makes up the difference by buying from another bank.
Turnover is a different measure from Nigeria's foreign exchange reserves, which are the foreign currency assets the Central Bank of Nigeria keeps and can use to meet external obligations and support the market. It is also different from foreign exchange inflows, which are the dollars arriving in Nigeria through exports, investments, remittances, and other channels. One bank selling another bank dollars it already keeps raises turnover, and the country's total supply of foreign currency is unchanged.
What happened on September 30
Turnover reached $111.06 million on September 25 from 108 deals, and $105.95 million on September 24 from 103 deals. September 29, at $80.58 million from 94 deals, was the lowest of those sessions, and September 30 brought turnover above every one of them.
The published figures give the value traded and the number of deals. They do not name who bought or who sold, so the data alone does not explain why the rate or the amount traded changed from one day to the next.
Why the naira strengthened slightly
The naira traded between ₦1,328 and ₦1,331.75 during the September 30 session, with a weighted average of ₦1,329.16.
External reserves increased from $45.57 billion on January 2 to $54.86 billion on September 24, a gain of $9.29 billion. At that level the CBN can sell more dollars into the market when demand rises. The committee that sets the policy rate also reduced it to 23% from 26.5% on September 22.
Where Nigeria's dollars come from has also changed. Of the $10.8 billion that came into Nigeria in July, $7.3 billion, nearly 68%, came from sources outside the CBN, a deputy governor of the bank said in September. Remittances through licensed operators accounted for about $950 million of that. In the same remarks, he put the gap between the official rate and the parallel market rate below 2.2%, compared with an average of 68.2% through the first five months of 2023.
Buying dollars to make a payment
When trading in the official market is this active, dollars are easier to buy that day, and the price you pay is less likely to be far from the quoted rate.
A stronger naira means you pay less naira for each dollar on an invoice, and a weaker naira means you pay more. The invoice amount in dollars is the same either way. Buying the dollars for a $50,000 invoice costs ₦500,000 more when the naira weakens by ₦10.
Converting between currencies
How much naira you get when you convert dollars, pounds, euros, or Canadian dollars depends on the rate on the day you convert.
The gap of 2.2% between the official rate and the parallel market matters more than one day's turnover. When the two rates are this close, converting through a licensed channel gets you nearly as much naira as the parallel market would.
Paying in the currency you're invoiced in
An invoice arrives in dollars and is due later in the month. The rate moves in between, and the naira cost of that payment moves with it.
With the Juicyway app you can receive dollars, pounds, euros, and Canadian dollars, convert between them whenever you choose, and pay whoever you owe abroad in the currency they invoice in.
Key terms
Foreign exchange market: The market where people, businesses, banks, and other authorised participants buy and sell currencies.
Nigerian Foreign Exchange Market (NFEM): Nigeria's official foreign exchange market, where authorised dealers buy and sell foreign currencies under the CBN's willing-buyer, willing-seller framework.
Interbank foreign exchange turnover: The total value of foreign currency banks traded with each other over a given period.
Foreign exchange reserves: The foreign currency assets the CBN keeps, which it can use to meet external obligations and support the foreign exchange market.
Foreign exchange inflows: Money arriving in Nigeria in foreign currencies through channels such as exports, investments, and remittances.
Frequently asked questions
Is the interbank rate the rate I get when I convert?
No. The interbank rate is the price banks pay each other. What you get depends on the rate your provider shows on the day you convert.
Who can trade in the official market?
Authorised dealers licensed by the CBN, mostly banks. Everyone else buys and sells foreign currency through them.
Does a stronger naira mean dollars are easier to buy?
Not on its own. A stronger naira means each dollar costs less naira at the quoted rate. Whether you can buy the dollars you want depends on what banks have available that day.
How much did the naira move over September?
It began the month at ₦1,329 and ended it at ₦1,329.50, with the September 30 session trading within about ₦4. It was at ₦1,374.50 in July.
