The recent volatility of the exchange rate at the black market has been linked to fiscal leakages, speculation and arbitrage activities, which far outpace the optimism at the official market.
This is according to insights from forex traders and Bureau De Change (BDC) operators who spoke to Nairametrics.
They said the over-appreciation of the naira at the official market without corresponding fundamentals has encouraged the proliferation of ungoverned forex channels that are used as a conduit for the diversion of liquidity into the economy.
They also attributed this to an imbalance in the market with the demand for foreign exchange still structurally high while supply remains constrained with many market participants holding on to dollars in anticipation of further depreciation of the naira, a situation that tightens liquidity.
What they are saying
Forex traders say the divergence between official and black market rates is driven by speculative activities and weak liquidity at the retail end of the market.
Aminu Gwadebe noted, “The over-appreciation of the naira is encouraging the creation of many ungoverned FX channels that are used as a conduit for the diversion of FX liquidity into the economy.”
He added, “Speculation and arbitrage activity in the parallel market far outpace optimism in the official market… as long as there is fiscal leakages, the parallel market will continue to drive exchange rate movement.”
Basir Kanjiwa said, “Demand for foreign exchange remains structurally high… while supply is constrained. Many market participants hold on to dollars in anticipation of further depreciation, which tightens liquidity.”
The traders stressed that uncertainty around policy direction and inconsistent implementation continues to discourage inflows and deepen pressure on the naira.
More insight
Recent data shows the exchange rate stood at N1,355.25 per dollar at the official market and N1,400 per dollar at the parallel market, creating a disparity of N44.75, up from N21.50 recorded the previous month.
This has renewed concerns about liquidity, policy implementation, and the potential for arbitrage in the foreign exchange market.
Traders linked the widening gap to excess demand for foreign exchange driven by importers, tuition payments, medical expenses, and travel needs.
Liquidity remains tight in the retail segment, with BDC operators relying heavily on inconsistent sources such as diaspora remittances and private inflows.
The limited reintegration of BDCs into the official FX distribution chain has further fragmented the market and widened the disparity.
Analysts noted that while the Central Bank has improved FX supply through banks and priority sectors, the impact has not fully filtered down to end users.
Gwadebe called on the government to de-emphasise the over-appreciation of the naira and to encourage domestic growth to help internal revenues, diaspora remittances, and long-term economic diversification.
The ABCON boss also said that excessive government spending, corruption and inefficiency played a major role in the depreciation of the naira.
He said, ‘’Excessive government spending: Nigeria’s fiscal policies often lead to budget deficits, fueling inflation and weakening the Naira
‘’Corruption and inefficiency: Diverted resources and bureaucratic hurdles deter foreign investment and hinder economic growth.’’
Kanjiwa pointed out that the liquidity in the forex market remains tight, especially at the retail end, where the BDCs operate.
‘’Although the Central Bank has made efforts to improve supply, most of the liquidity is channelled through commercial banks and priority sectors. By the time it filters down, there is still a noticeable shortfall,” he said.
He lamented that the BDCs, which used to play a more central role in retail FX distribution, have not been fully reintegrated into the official supply chain.
‘’As a result, operators rely heavily on autonomous sources such as diaspora remittances and private inflows, which are inconsistent. This has created a fragmented market structure, where demand continues to outpace supply, and exchange rate disparities persist between segments of the market,’’ he added.
What the government should do
To stem this tide, Gwadebe asked the government to diversify the economy by boosting non-oil exports like agriculture and manufacturing to reduce oil dependence, as well as ensure fiscal discipline by controlling spending, reducing the deficit and prioritising productive sectors.
‘’Enhance transparency and effectiveness in managing inflation and exchange rates, improve the business environment and attract foreign investment as well as manage debt, boost exports, and attract remittances,’’ he added.
He said the simple solution to the exchange rate disparity is to expand the nest of fragmented, many ungoverned operators under the self-regulatory body membership status of the sub-sector to help in monitoring and oversight.
Gwadebe noted that the Financial Action Task Force recommendation 34 places emphasis on collaboration with self-regulatory bodies in market intelligence and oversight of the industry sub-sectors.
On his part, Kangiwa said the government needs to focus on restoring confidence and improving supply fundamentals.
He said, ‘’In the short term, there is a need for more consistent and transparent FX interventions, alongside a clearer framework that incorporates BDCs into the distribution chain to ease retail pressure.
He insisted that the real solution for the medium to long term lies in boosting dollar inflows through increased oil production, stronger non-oil exports, and renewed foreign investment.
What you should know
The Central Bank of Nigeria (CBN) has continued to push reforms aimed at improving transparency and efficiency in the FX market.
In March 2026, Nairametrics reported that exchange rate disparity had begun widening due to speculative demand and limited dollar supply.
Analysts, including Dr Muda Yusuf, linked the trend to uncertainty about the sustainability of the naira’s appreciation.
Some market participants have taken advantage of lower official rates to accumulate dollars, further widening the gap between the two markets.
Experts say resolving the disparity will require boosting FX inflows, improving policy clarity, and ensuring broader access to foreign exchange across all segments of the market.
Chike was a banker with over 11 years of experience in retail and commercial banking, risk management, treasury portfolio management and relationship management.
