The Central Bank of Nigeria (CBN) has declared that Nigeria currency (Naira) exchange rate is now floated, which implies that the Naira exchange rate will now be fully determined by market forces of demand and supply.
According to the information obtained on the CBN website, the exchange rate data on the CBN macroeconomic indicator’s section has been removed and replaced with “The Naira exchange rate is market-determined“.
The website has reflected this change since the last few days of May without change, leading some analysts to opine that the CBN may have surreptitiously decided to float the naira.
More details: There are multiple exchange rates in Nigeria. The Central Bank’s official rate is (was) N305/$1 which is also published on its website and has been that way for years before the latest change depicted above.
Meanwhile, the parallel market (bureau de change) is the most patronized for individuals, travellers and even businesses. In the parallel market, price is specifically determined by market forces of demand and supply.
Note that in 2017, CBN officially introduced a multiple exchange rates system, which added the establishment of the Investors’ & Exporters’ FX (I&E) window to the existing official bank rate. According to CBN, the move was a continued effort to deepen the foreign exchange (FX) market and accommodate all obligations.
“The purpose of establishing the I&E FX market is to boost liquidity in the FX market and ensure timely execution settlement for eligible transactions.”
In the I&E window, the supply of foreign currency to the window is done through portfolio investors, exporters, Authorised Dealers and other parties with foreign currency to exchange naira. Also, CBN is a participant to promote liquidity and ensure professional market conduct. The I&E window is market determined and is viewed as a major reason for the stable exchange rate currently seen in Nigeria.
The Bottom Line: While the CBN is yet to issue an official statement to the change in the Nigeria exchange rates system, what this suggest is that the CBN has finally accepted that the exchange rate will henceforth be determined by the forces of currency demand and supply.
CBN has continuously intervened by injecting billions of dollars to defend the naira due to excess demand for the dollar. Whether this means CBN will stop intervening in the FX market remains yet unknown.
Source: Boom: CBN reports it has “floated” the Naira
By Bamidele Samuel Adesoji
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