The Nigerian currency, the naira, has seen a significant devaluation in its exchange rate against the US dollar, with a marked drop to NGN634 per dollar from just under NGN470 per dollar previously.
This has sparked a flurry of reactions in the foreign exchange market as the economic implications begin to ripple through Nigeria’s economic landscape.
The central bank’s stance on the naira’s freefall
The Central Bank of Nigeria (CBN), the country’s financial regulator, played a pivotal role in this currency adjustment. It controversially gave the green light for the naira to operate on a “floating” exchange rate, a move that has contributed to the naira’s sharp decline in value.
This decision arrived in the wake of promises from Nigeria’s President Bola Ahmed Tinubu, to dissolve the CBN’s long-standing multiple exchange rate regime.
Historically, the CBN has managed to maintain the naira-to-dollar exchange rate at under NGN500 to the dollar for over a year, despite pressure from various corners to devalue the naira.
The naira’s exchange rate during this period fluctuated between NGN600 and NGN800 per dollar, reflecting the financial institution’s steadfast resistance to calls for devaluation.
President Tinubu’s policy impact and reactions
President Tinubu’s entrance into office on May 29 sparked rumors of an impending devaluation of the naira. His unexpected suspension of CBN Governor Godwin Emefiele shortly after taking office appeared to affirm these speculations.
Tinubu’s actions suggest a commitment to delivering on his inauguration day promise of an economic overhaul.
The CBN, in a recent social media post, sought to shed light on the implications of this drastic shift in foreign exchange policy for the Nigerian populace and businesses.
It explained the workings of the Import and Export (I&E) market, which operates on a willing buyer-willing seller system. This approach allows entities in need of foreign exchange to seek out others with foreign exchange to sell at an agreed price via an authorized dealer.
In addition, the CBN announced that other existing foreign exchange rate regimes in the country would be phased out, pointing to an era of a single, unified exchange rate system.
This marks a significant shift in Nigeria’s forex policy, intended to bring transparency and simplicity to the system.
However, as the naira experiences a freefall, many have raised questions about the implications of such a drastic shift in policy on the Nigerian economy, businesses, and the everyday Nigerian.
As the naira continues its downward spiral, the question on everyone’s lips is – “Where do we go from here?” It remains to be seen how these policy shifts will shape the future of Nigeria’s economy in the long term.
