The mainstreaming of the forex black market was made possible by this fixed exchange rate, which gave rise to a situation that is now a permanent fixture. The naira was once trading as high as 88 naira to $1. Today the Dollar to Naira is exchanged above ₦700/$1 at the black market.
You can always check daily Dollar to Naira exchange rate by clicking here
Bankers created what they once referred to as the "blended" rate. If a client asked their bank for $1 million but got $10 million instead, the bank would inflate the amount knowing that CBN would never approve the complete request.
Any CBN purchases were combined with the rest that came through the black market in a process known as "blending."
It doesn't take a genius to see that people would make an absolute fortune from the arbitrage if the black market rate was four times the official rate. This time period saw the creation of numerous Nigerian financial fortunes that still exist today. It was a nice transaction.
Jacob Sanusi (CBN governor 1999 to 2004)
Under Joseph Sanusi, the Interbank Foreign Exchange Market (IFEM) was established. The naira was never going to last very long at the "military fiction" rate of 22 naira given how severely Nigeria's reserves had been eroded in the two years prior to his administration. In less than a year, the naira was trading at 85 naira, but this time, the difference with the black market had narrowed significantly to 105 naira to the $1—especially when compared to what had occurred under president Abacha.
Nigeria was struggling to pay its $33 billion international debt, which was consuming important foreign currency, in addition to the low price of oil.
Sanusi also experimented with all the things we see today. When the naira started to weaken, he stopped the IFEM for six months and put a cap on the margin (over the CBN's rate) that banks could sell their own foreign currency for. Godwin Emefiele, the current governor, is still acting in the same manner.
Once more, the attempt to "manage" the exchange rate spawned a variety of amusing games. Banks merely conformed with this rate at the IFEM because the rate at which they could sell their foreign exchange was regulated, but they subsequently took an additional payment outside of the system to make up the difference with the "true rate" at which they were actually selling. This game was dubbed "NIBSS and Drafts" by some bankers since you used the Nigeria Inter-bank Settlement System (NIBSS) to pay the official rate and a bank draft to cover the difference.
