Parallel Market Exchange Rate Nigeria: Clear the Confusion Now

Nigerian currency exchange is a growing business among the Aboki people from the Northern part of Nigeria.

It’s not a surprise thing because the Nigerian Naira exchange rate to other foreign exchange rates fluctuate often and people are able to make good money trading in the currency exchange market.

In Nigerian currency exchange rate, you have the bank rates and the black market or parallel market exchange rate.

So, What is Parallel Market Exchange Rate Nigeria?

The black market in currencies refers to illegal or parallel market in Forex trading found in many countries around the world.

The currency black market forms a portion of the underground economy and it is operating outside the legal banking channels.

In Nigeria currency black market community, cash transactions happen to be the norm, since participants could be obviously hesitant to leave any trace of their involvement in any transactions between both parties.

During the black market currency exchange, the both parties need to be becareful, especially in countries you are not allowed to trade currency through black market money exchange. An example is described below.

Why Do Currency Black Markets Exist Anyway?

Currency black markets typically come into existence in countries that have in common the characteristics listed below:

  • Weak economic fundamentals, including a high rate of inflation and limited foreign exchange reserves.
  • Strict currency controls to limit the volume of foreign exchange available to residents.
  • A fixed exchange rate regime that the domestic currency is pegged at an unrealistically high exchange rate towards the U.S. dollar and other global currency.
  • Too little confidence among the public in the value of the domestic currency.

Thus, substantial demand for foreign currency is created in the nation by the means of these attributes, since it’s the citizens aim to hedge the need for their cash holdings.

However, the currency controls make it extremely hard for people to buy foreign currencies with the domestic currency at the official exchange rate.

A black market, therefore, develops for foreign currencies that would generally be appraised at a significant premium for the official exchange rate, due to its artificial value and the demand-supply imbalance.

The Bottom Line

A currency black market/parallel market exchange in a nation will exist as long as the adverse economic factors mentioned above remain in force.

However, its importance may gradually erode if the economy grows more open, foreign currency reserves increase and confidence in the domestic currency returns.

India is a good example of a country that has managed all and was able to eliminate its currency black market over the last 20 years as it transitioned to a market economy and implemented a floating rate policy for its Rupee.

Booming international trade and healthy economic growth have ended in India’s foreign exchange reserves amounting to US$295 billion by February 2013, compared to a low margin of about $1 billion in 1990.

While the impact of a currency’s gyrations in Nigerian economy is much-reaching, most people do not pay close attention on foreign exchange rates because most of their business and transactions are conducted in its domestic currency.

For the consumers in Nigeria, exchange rates only come into play for occasional activities or transactions for foreign travel, import payments or overseas remittances.

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