Nigerian Currency Falls by More Than 30% After Central Bank Announced New Forex Market Rules
The Nigerian currency’s official exchange rate versus the greenback recently plunged to NGN634 per dollar from just under NGN470 per dollar. The central bank’s decision to allow the naira to “float” came a few weeks after Nigerian president Bola Ahmed Tinubu pledged to end the CBN’s multiple exchange rate regime.
The Naira Devaluation
The Nigerian currency’s official exchange rate versus the U.S. dollar plunged to an all-time low of NGN634 per greenback on June 14. The naira’s fall by more than 30% came just days after the Central Bank of Nigeria (CBN) denied devaluing the currency’s exchange rate to NGN631 per dollar from just NGN470 per dollar. The central bank’s decision to allow the naira to “float” also came a few weeks after Nigerian president Bola Ahmed Tinubu pledged to end the CBN’s multiple exchange rate regime.
Understanding the Operational Changes to the Foreign Exchange (FX) Market 1/3 pic.twitter.com/kNIhH7GIsw
— Central Bank of Nigeria (@cenbank) June 16, 2023
Before the central bank’s apparent devaluation of the naira, the Nigerian apex bank had kept the naira-to-dollar exchange rate under NGN500:USD1 for more than a year. During the same period, the naira’s exchange rate ranged between NGN600 and NGN800 per dollar. During this period the CBN is reported to have repeatedly rejected calls to devalue the naira.
However, after Tinubu assumed office on May 29, some in Nigeria speculated that the CBN was on course to devalue the naira. For others, the Nigerian leader’s abrupt suspension of CBN governor Godwin Emefiele proved that Tinubu intended to fulfill his inauguration day pledge.
Meanwhile, in a June 16 tweet, the CBN attempted to explain to Nigerian residents and businesses why they need a flexible foreign exchange rate.
“The I and E [import and export] market functions by a willing buyer willing seller system, where an entity with demand for FX seeks out another entity with foreign exchange to sell at an agreed price through an authorized dealer,” the central bank said.
The Nigeria central bank also said the country’s other foreign exchange rates regimes would “cease to exist.”
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