Currency Manipulation: How It Affects Prices in Nigeria

Presently, the Nigerian forex market is a market that is an unstable platform where speculators come to manipulate and exploit. The root of the Naira problem is because the very core of the Naira is volatile oil revenues that coincide with permanent inflation and inflexible monetary policy adjustments. Currency speculators derive the greatest benefit from Nigeria’s present macroeconomic problems other than the inherent weaknesses of market status and deliberately place market instability to gain from the instability.

Rising speculative activity in the Nigerian foreign exchange market has hurt the Naira as it causes gaps between official and parallel market rates as well as value distortions. In this paper, we explore the forex traders in Nigeria who take advantage of Nigerian forex market weaknesses in naira manipulation methods. The paper also examines aspects of forex trading in Nigeria, especially the dangerous parts of that sector.

 

A Volatile Market on the Edge

Nigeria is a managed float system of currency trading where the Central Bank of Nigeria (CBN) can influence Naira exchange rates and that of the currency is also influenced by the market. Because of this exchange rate system, currency speculation opportunities in Nigeria are wide open.

In March 2025, the official exchange rate of the Naira for the American dollar remains ₦1,350, while the parallel market rates between ₦1,500 and ₦1,600 may vary between 15 and 20 percent. Nigerian Bureau of Statistics data indicated that Nigeria’s foreign reserves fell from $38.2 billion during early 2023 to $32.5 billion in Q1 2025, thus making it difficult for the CBN to defend the currency.

In addition, the existing difference between official and black market exchange rates provides speculators with an opportunity to purchase foreign currency through unofficial channels and resell them at higher prices on the parallel market. The consequences? A weakened Naira, artificial inflation, and a diminished trust in monetary policy.

 

The Anatomy of Currency Speculation in Nigeria

Before analysis of the strategies speculators use to exploit the forex market weaknesses in Nigeria, one must have the understandings. Currency speculation process is based on the fact that investors need to keep currency positions in case they anticipate market value changes to derive profit. However, the Nigerian speculative market has no real economic value because insiders artificially push prices through manipulation of currency rates.

 

1. Round-Tripping and Arbitrage

One of the most basic Nigerian tactics in forex speculation is round tripping, which entails that one sells forex to the official CBN rate and buys back another forex he sold somewhere at a certain profit. It is a practice done both by PEPs and bank institutions and by Bureau de Change (BDC) operators.

Known for issuing several circulars to prevent the access of BDC forex, which have diced loopholes, the CBN issues circulars that limit BDC forex access. About $3 billion in forex funds have vanished due to round-tripping with fake documentation, CBN told in 2023. The falsified forex market practices make market demand exceed actual levels in a bid to make the market over Glossy demand for the good of the business owner instead of that of the genuine business owner who suffers from delayed delivery and expensive offers.

 

2. Artificial Demand Creation

Banks, alongside shell companies, are used by speculators to manipulate currency markets through fake currency requests, which then create artificial market demand. Artificial demand overload results in CBN in limiting the access of forex or in immediate policy actions.

In 2022-2023, to obtain dollars for their illegal arbitrage opportunities, importers of restricted items, such as toothpicks and textiles, came to their peak practice of submitting fake documents. As a result, the depletion of valuable reserves and public misunderstanding of the effectiveness of policy took place.

 

3. Manipulating News and Sentiment

Public emotions, together with psychological factors, are used particularly by speculators in their works. Speculators also create a narrative surrounding Social media and news leaks about Naira devaluation or Central Bank of Nigeria policy shifts, which increases public fear. If the planned actions are to take place, then an exchange of Naira for Dollars becomes rushed, which raises prices at the black market.

Speculators began a Naira market crash with the possible announcement that the Naira would be unified into the Nigerian currency during late 2023. Over a week, the parallel market rate increased by almost ₦150, and the central bank still hadn’t devalued officially. Regulators fail to broadcast clear communications to their audiences, and information manipulation can be successful.

 

Structural Vulnerabilities That Enable Exploitation

In Nigeria, there is no greed in the Nigerian currency market, but the fundamental operational failure in the system continues to keep the system profitable. These include:

1. Policy Flip-Flops and Lack of Clarity

The change in Nigeria’s foreign exchange policies from a free market to government intervention created room for the exploitation of opportunities. After regulators suspended BDCs in 2023, the market got confused since they were reestablished only in 2024. The presence of regulatory uncertainty provides speculators with a chance to profit from the unpredictability of policy changes and to execute their strategic investment strategies.

 

2. Opaque Forex Allocation System

Forex distribution into Nigeria mostly operates in a state of public transparency. For instance, banks as well as big corporations have privileged access to forex, making SMEs and for real importers making it difficult to have difficulty in obtaining forex. There is the practice of having insiders who prefer to enter the system favouring them as they share sensitive information with unauthorized parties.

 

3. Multiple Exchange Rates

Conditions that make for arbitrage in the Nigerian market include multiple exchange rates between CBN official rate and NAFEX (Investors’ & Exporters’), and parallel market. To this, the CBN still races to bring the exchange rate together, but the remaining price differences naturally give birth to speculative activities.

 

The Broader Impact of Naira Exchange Rate Manipulation

The effects of financial actions relating to the creation of the Nigerian currency reach past monetary benefits. The macroeconomic consequences are dire:

As the amount paid by importers increases in dollars, importers have to charge higher prices, which consumers must pay. The February 2025 happened to be the second the highest inflation figure since 2000 because of the number of imported products and a mean inflation rate of 29.9%.

Exchange rate risk tends to keep foreign investors away from investing in markets where exchange rate risks remain unanticipated. Rainy financial conditions resulted in the loss of a considerable amount of Foreign Direct Investment (FDI) in Nigeria as their FDI diminished throughout the year 2022 and continued to slide further in the year 2024 from $2.5 bn down to $1.1 bn.

However, SMEs form a part of the 48% GDP contributor segment that imposes major difficulties as they fight to meet their raw materials of equipment with foreign exchange. The resulting lower productivity and layoffs of business employees, along with business shutdowns, have also occurred while the exchange rate situation is unstable.

 

Can Nigeria Win the War Against Speculation?

A combination of measures was taken against speculations by the Nigerian government together with the CBN but without the desired outcome. In mid-2024, the CBN created the Forex Market Surveillance Task Force, which is responsible for monitoring and auditing doubtful revenue inflows. These measures are still insufficient to police the recent high-profile arrests.

Nigeria has to employ several strategies to achieve its aspect.

1. An arbitrage-free market will be formed by removing the possibility for arbitrage with one single market-driven window. In this program, there should be a clear policy continuity which should be directly linked to financial disclosure.

2. Creating transparency and reducing favoritism of the idea, digitized forex allocation data would work in a real-time system.

3. This will lead to the depth of Nigeria’s foreign exchange market when the CBN allows more non-oil forex flows – technology services, diaspora remittances, tourism activities, etc. to cushion the extent of its pressure and to provide real market liquidity.

4. Regular audits in tandem with the licensing reforms and public default entity blacklisting will discourage BDCs as well as banks from any illegal activities.

 

Conclusion

The Nigerian forex market is first a playground of economic tussle and second a ground of criminal financial disorder. This all results from inconsistent policies and a lack of proper oversight marked by inadequate transparency, which enables profit-oriented currency speculators to freely exploit Nigeria’s forex market weaknesses.

This results in the Naira depreciation and cost of exploitation of the Naira Currency, which results in increasing price, follow investment trust and an inactive economy. To prevent the continued destruction of the Nigerian currency, a revamp of the Nigerian monetary system trust through treatments of speculator loopholes is urgently required.

It is a situation that demands immediate action. Before speculation becomes market uncertainty’s default reaction, the time has come for Nigeria to take purposeful and prolonged measures to fight forex trading risks and divert channels that encourage Naira manipulation. Such risks are not tolerable in the country.