Mr. Godwin Emefiele, Governor of CBN

Examining Nigeria’s foreign exchange regime on path to fair value

*Central Bank of Nigeria devalues official rate a second time by 5.5% to 381 per Dollar on FMDQ OTC Securities exchange ─Report

*Federal authorities in talks with World Bank for a fresh loan to cover budget gap

Web Editor | ConsumerConnect

Apparently under pressure from multilateral lenders, Nigeria is said to have decided to straighten out its multiple and apparently confusing foreign exchange (Forex) regime that deters investment in Africa’s biggest economy.

However, the slow pace of change signals the path to a single rate could be long and confusing for investors, Bloomberg report said.

It was learnt that the collapse of oil prices in March 2020 forced the Central Bank of Nigeria (CBN) to take the first step by adjusting its official currency peg against the United States (US) Dollar to 360 Naira from previous 307 Naira.

Prior to this move, the rate had been relatively unchanged since 2015.

The devaluation, source further indicated, was also a nod to the International Monetary Fund (IMF), from which the West African nation was seeking a $3.4 billion emergency loan.

The IMF approved the loan after Nigeria had promised to seek a unified and more flexible exchange rate, even though that was not a precondition.

Authorities are also in talks with the World Bank for another loan needed to cover its budget gap, said the report.

It has been noted that in addition to the country’s official exchange rate, used mainly for government transactions and the budget, Nigeria maintains a multiplicity of rates.

The rate for investors and exporters, known as Nafex, also acts as a spot rate for the Naira, and this rate has averaged 388 Naira per Dollar since March, the report stated.

It was also learnt that there is a rate for small businesses that want to import raw materials.

This rate is now 380 per Dollar after the CBN devalued it from 360 July 3, 2020.

There is another rate for Bureau de Change (BDC) operators, mainly to allow Nigerians to access foreign currency to pay school fees for their wards abroad, or for travel.

There have been no sales of foreign currency to BDCs since the outbreak of the pandemic.

Besides, there is the black-market rate, where the Dollar sells for 463 Naira to those who cannot access any of the official windows.

According to the source, the Central Bank of Nigeria,  devalued the official rate a second time by 5.5% to 381 per dollar this week on the FMDQ OTC Securities exchange, the country’s largest currency and debt trading platform, said the report.

But the Bankers’ Bank has not yet officially announced the new rate, causing confusion among traders.

However, the Bank maintains 360 Naira to a Dollar as the official rate on its Web site, and President Muhammadu Buhari recently signed a revised N10.8 trillion Budget 2020 based on this figure, added the report.

In terms of the rationale behind the different rates in the country’s economy, price stability is said to be a key aim of the CBN policy.

A weaker Naira could stoke inflation, which at 12.4% in May is already at a two-year high and well above the target-range ceiling of 9%, the report said.

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