In mid-April, the Naira moved from ₦1,567.77/$ to ₦1,627.37/$, losing nearly ₦60 in just five trading days. This underlines the sharp and unpredictable shifts that currently define Nigeria’s currency.
But why exactly is the Naira swinging so wildly? Among the factors observers are considering is the Central Bank of Nigeria’s (CBN) decision to cancel approximately $2.4 billion in forward contracts. This move has shaken the foundation of how businesses manage foreign exchange risk in Nigeria.
The ghost of canceled forward contracts
Forward contracts are vital tools for businesses operating in volatile currency environments. They allow companies to "lock in" an exchange rate today for dollars they will actually need months down the line, offering a sense of stability in financial planning. In a place like Nigeria where the value of the Naira is constantly under pressure from oil prices, political changes, and global market shifts, these contracts aren’t a luxury. They’re a necessity.
By entering a forward contract, a Nigerian manufacturer could confidently plan for raw material imports, knowing that months down the line, they would still pay at a predetermined exchange rate rather than be at the mercy of market fluctuations.
However, when the CBN abruptly canceled billions worth of these contracts, citing reasons like fake documentation and invalid entities, that stability was ripped away. Businesses that thought they were protected suddenly found themselves dangerously exposed.
Without the shield of forward contracts, companies were forced into the spot market, desperate to buy dollars immediately at whatever price they could find. A market that was already starved of liquidity saw demand skyrocket overnight. Businesses that had budgeted for, say ₦800/$, were now confronting real-time rates closer to ₦1,600/$ — double what they had planned for.
This mass scramble did more than drive up the exchange rate. It also triggered widespread financial distress. The Manufacturers Association of Nigeria (MAN) estimates that businesses have lost over ₦1.5 trillion due to unmet FX obligations. Companies that rely heavily on imports found themselves stuck — unable to pay suppliers, fulfill contracts, or plan for the future.
In a country where much of the industrial sector is tied to imports, the cancellation of forward contracts is akin to removing a life raft in the middle of a storm. Businesses that had responsibly hedged their risks were punished, while uncertainty and chaos were allowed to spread.
The impact went beyond just businesses. Confidence in the FX market, though already fragile, took a heavy blow. Foreign investors, banks, and multinational corporations saw the cancellation as a red flag: if contracts with the Central Bank itself could be revoked, what certainty existed for anyone else?
Speculation and sentiment
Currency markets are about trust just as much as they are about numbers. Right now, confidence in Nigeria’s FX regime is low. Banks, importers, and speculators alike are hedging against further Naira losses, creating a self-fulfilling spiral. When everyone expects the currency to fall, they rush to buy dollars, which pushes the Naira down even faster.
This has revived the black market, where dollars trade for ₦1,600 - ₦1,650. That gap between official and parallel rates creates arbitrage opportunities and encourages hoarding, further destabilizing the currency.
Rebuilding confidence
Restoring stability won’t happen overnight; we can’t predict exactly how or when it will happen, but we’ll keep you updated when necessary. The Naira is in a volatile position, and navigating this uncertainty is a challenge for many.
While the volatility is no doubt unsettling, Juicyway offers reliable dollar liquidity when you need it most. Get access to foreign exchange, even when the market is unpredictable, on Juicyway.
