The Central Bank of Nigeria (CBN) has announced further steps to promote the liberalization of foreign exchange trading as it let the official exchange rate of the Naira shed 36% of its value.
The CBN released a statement in March 2023 announcing that all foreign exchange trading would be conducted through its Investors and Exporters (I&E) window. Additionally, CBN re-introduced the ‘willing buyer, willing seller’ model, as stated in the statement.
Press Release: Operational Changes to the Foreign Exchange Market …https://t.co/80AqEHqJub pic.twitter.com/ClbVJducnN
— Central Bank of Nigeria (@cenbank) June 14, 2023
According to the statement, the operational rate for all government-related foreign exchange transactions will be determined based on the weighted average of executed trades from the previous day. Furthermore, CBN announced the re-introduction of order-based, two-way quotes cleared by a central counter-party.
According to traders who spoke to Reuters, the central bank had lifted trading restrictions on the official market. As a result, the Naira experienced a significant decline, reaching a record low of 750 Naira to the US Dollar in the official market. This marks a substantial decrease from the previous day’s rate of 477 Naira to the Dollar.
This move came shortly after President Bola Tinubu suspended CBN Governor who was responsible for managing the heavily criticized multiple exchange rate system.
Over the course of many years, the existence of multiple exchange rates in Nigeria has resulted in a shortage of foreign currency. Under the leadership of the suspended CBN Governor, Godwin Emefiele, this situation further deteriorated creating challenges for investors seeking to repatriate funds from the country’s largest economy in Africa.
The newly established rate is now in line with the black market rate which has remained relatively steady at around 750 Naira to the US Dollar since the previous year.
This marks the first time, since 2016, that the Naira has recorded a big fall on the official market before CBN introduced a managed exchange rate in 2017.
Foreign investors had consistently highlighted the foreign exchange restrictions as one of the major obstacles to financing in Nigeria, which is Africa’s largest oil-producing country.
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