Banks are offering $1 for N700 as the CBN floates the Naira. Nigeria’s Central Bank appears to have implemented a managed float in the days following President Tinubu’s remarks about the need to converge Nigeria’s exchange rate.
Nigeria’s Central Bank has loosened control over rates in what looks to be a controlled float in an effort to move away from a fixed foreign exchange policy.
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One of Nigeria’s top banks verified to TechCabal that the USD is now trading for N699 (buy rate) and N700 (sell rate) in Nigeria. Nigeria kept its official exchange rate under strict control for years even as its foreign exchange reserves reached all-time lows.
The CBN maintained a fake rate of $1/N462, although the majority of people were unable to purchase dollars at that price.
The CBN compiled a list in order to manage demand. The CBN compiled a list of 43 products for which importers could not obtain foreign currency at official rates in order to manage demand. It eventually restricted FX access for students who were studying abroad.
However, these workarounds were unable to address the demand issue, prompting people and businesses to turn to the parallel market, where prices increased this year to as much as $1/N755.
The World Bank repeatedly advised the Central Bank to consolidate its exchange rate windows as a result of the significant arbitrage potential it presented.
Before it was elected, the Buhari administration bragged about improving exchange rates but was hesitant to let the Naira float. Instead, it attributed the enormous discrepancy between official and black market rates to other parties.
At its most absurd, CBN Governor Godwin Emefiele attributed the volatility in the foreign exchange markets to the rate aggregation website Aboki Fx as well as other black-market traders.
However, when airlines and multinational corporations wanted USD, pressure only increased. Unilever informed Bloomberg in 2021 that it was forced to purchase USD at a rate that was 9% higher than the CBN’s, and airlines reported having over $700 million stuck in Nigeria in March 2023.
Due to their inability to shift their money, foreign investors could only realize paper returns from their investments in Nigeria. It made uncertainty worse and resulted in a decline in foreign direct investments. In Q2 2022, foreign investment in Nigeria hit a record low.
Will Naira floating resolve FX issues? Although it is a positive move, today’s float might Even if it is a positive step, today’s float could not provide relief right away. The banks are unlikely to be able to service the enormous backlog of FX demand in the near future.
In the future, the banks will be in charge of obtaining their own FX supplies, which will eventually result in a unification of the rates.
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Theoretically, the float should lead to increased supply, and in the interim, the CBN will probably intervene and continue to provide banks with FX as needed.
However, it is evident that investors will value the reality and transparency that come with today’s managed
