Naira Falls to ₦1,620/$ in Parallel Market While Slightly Strengthening in Official Market – What It Means for Nigerians
The Nigerian naira continued its turbulent journey in the foreign exchange markets on Tuesday, June 3, 2025, as the currency weakened significantly in the parallel market, commonly known as the black market. At the close of business, the naira depreciated to ₦1,620 per dollar, dropping from ₦1,610 recorded just a day earlier on Monday, June 2. This represents a sharp ₦10 decline within 24 hours.
In contrast, the official Nigerian Foreign Exchange Market (NFEM) told a slightly different story. According to data released by the Central Bank of Nigeria (CBN), the naira actually strengthened marginally, gaining ₦1 to trade at ₦1,579 per dollar, compared to ₦1,580 the previous day.
“This movement reflects a modest strengthening of the naira within the official window,” the CBN stated, “even as the local currency weakened on the streets.”
This dual movement – a weakening in the black market and a strengthening in the official window – is a reflection of Nigeria's ongoing foreign exchange (forex) crisis and the persistent gap between the two market rates. As of Tuesday, the gap between the parallel market rate and the official market rate widened to ₦41 per dollar, up from ₦30 per dollar on Monday.
Understanding Nigeria’s Forex Market: Why Are There Two Different Exchange Rates?
To fully understand the implications of this movement, it is important to break down the structure of Nigeria's foreign exchange market.
Nigeria operates a multi-tiered foreign exchange system that includes:
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The Nigerian Foreign Exchange Market (NFEM): This is the official CBN-backed market where foreign exchange rates are determined by a mixture of market forces and policy interventions. It includes commercial banks, authorized dealers, and large institutional buyers.
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The Parallel Market (Black Market): This is an informal market where individuals and businesses buy and sell foreign currencies without direct CBN oversight. Rates here are driven entirely by supply and demand, and the market tends to react faster to economic pressures.
Due to persistent dollar scarcity, bureaucratic hurdles in accessing foreign exchange from official channels, and rising import demands, many Nigerians – including importers, students paying tuition abroad, and travelers – rely heavily on the parallel market.
What Caused the Naira to Depreciate in the Black Market?
The naira’s sharp drop in the parallel market to ₦1,620/$ can be attributed to several factors:
1. Reduced Dollar Supply
There has been a growing shortage of US dollars in the parallel market. This shortage is caused by declining oil revenues, which is Nigeria’s main source of foreign exchange, and reduced foreign investments.
2. Speculation and Panic Buying
When people expect the naira to fall further, they rush to buy dollars, increasing demand and driving the exchange rate higher. This often becomes a self-fulfilling prophecy.
3. CBN’s Tightened Access to Official FX
The Central Bank has been tightening access to official foreign exchange to control demand, forcing more buyers into the parallel market.
Why Did the Naira Strengthen Slightly in the Official Market?
While the parallel market painted a grim picture, the official NFEM saw a small sign of stability with the naira appreciating by ₦1 to settle at ₦1,579/$.
This slight gain could be due to:
1. CBN Interventions
The Central Bank has been using various tools to stabilize the naira in the official market. These include releasing more foreign exchange to banks, adjusting monetary policy rates, and enforcing stricter compliance for FX transactions.
2. Improved Confidence Among Institutional Investors
Recent government reforms and pledges to stabilize the economy may be giving institutional investors more confidence in the official market.
3. Reduced Pressure from Bulk Buyers
If the CBN is meeting the needs of large corporations or sectors like aviation, energy, and manufacturing, it could reduce pressure in the NFEM and contribute to a slight appreciation.
The Widening Gap Between Parallel and Official Markets
Perhaps the most significant outcome of this dual market movement is the widening gap between the two exchange rates.
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On Monday, the difference between the black market rate (₦1,610/$) and the official rate (₦1,580/$) was ₦30.
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By Tuesday, this gap had grown to ₦41 per dollar – a worrying signal for market watchers.
This increasing disparity can be dangerous for the economy for several reasons:
1. Encourages Arbitrage
When the difference between the official and parallel market is wide, it incentivizes people to exploit the system. Individuals and businesses may obtain dollars at official rates and resell at higher black market rates for profit.
2. Erodes Investor Confidence
Foreign investors are wary of dual exchange rates because it adds risk and uncertainty to investments.
3. Increases Inflation
A weaker naira in the black market affects the cost of imported goods, especially since many importers rely on parallel market FX. This translates to higher food and commodity prices, further squeezing Nigerian households.
What Does This Mean for the Average Nigerian?
For everyday Nigerians, especially those who engage in any form of international trade or travel, the falling value of the naira in the parallel market means:
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Costlier goods and services: Prices of imported products – electronics, food items, fuel, building materials – are likely to rise.
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More expensive school fees and medical bills abroad: Nigerians paying foreign tuition or seeking medical treatment outside the country will need more naira to buy dollars.
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Increased financial pressure: The rising exchange rate will continue to erode purchasing power, deepen poverty, and drive inflation.
The Government’s Response and Way Forward
The Tinubu administration has repeatedly promised to stabilize the naira and unify exchange rates. However, achieving that goal has proven difficult, with continued volatility and misalignment in the forex market.
In recent months, the CBN has:
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Raised interest rates to attract foreign investment.
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Clamped down on cryptocurrency platforms, which were being used for unofficial FX trades.
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Improved dollar liquidity through oil-backed credit arrangements and Eurobond plans.
Despite these efforts, market participants argue that a sustainable solution requires increased dollar inflow, which can only come from:
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Reviving crude oil production and resolving pipeline theft issues.
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Diversifying exports beyond oil.
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Boosting diaspora remittances through incentives.
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Building investor confidence through clear policy direction and stable governance.
Conclusion
The latest figures – ₦1,620/$ in the black market and ₦1,579/$ in the official window – paint a complex picture of Nigeria’s forex crisis. While the official rate shows minor progress, the depreciation in the parallel market signals deeper economic trouble.
“This movement reflects a modest strengthening of the naira within the official window,” the Central Bank noted, “even as the local currency weakened on the streets.”
As the gap between the two rates widens, the burden on ordinary Nigerians increases, and the calls for more effective and transparent forex management grow louder. Until Nigeria can boost its foreign exchange supply and align its market forces, the naira’s volatility may continue to be a harsh reality for the foreseeable future.
