Nigeria’s Central Bank Governor announced new guidelines in the nation’s foreign exchange regulations on Wednesday. The Nigerian Interbank Foreign Exchange Market (NIFEX) will now operate on a flexible regime determined by the market forces of demand and supply.
Since the crash of oil prices last year, the Nigerian economy has been hit with an immense shortage of foreign exchange, forcing several businesses within the country to close shop. Those that remain have found it increasingly difficult to continue operations.
Analysts and stakeholders have made persistent calls for the authorities to devalue the naira to reflect its true market value; however, President Muhammadu Buhari had been resistant, arguing that past devaluations had the net effect of worsening an economic crisis. This week, the Central Bank of Nigeria (CBN) finally bowed to the pressure and announced a new foreign exchange regime within the country.
Speaking to members of the press, CBN Governor Godwin Emefiele said the exchange rate would be purely market driven, but the CBN could participate in the market through periodic interventions to buy or sell foreign exchange as the need arises.
The CBN’s move was largely welcomed by major financial stakeholders. While the financial markets have to wait until Monday, June 20, to get an official exchange rate between naira and dollars, the Nigerian Stock Exchange has already responded to the announcement: its All-Share Index (NSE-ASI) rose by 3.17 per cent at the close of business yesterday.
Overall, Nigeria’s new foreign exchange regime is expected to increase the availability of dollars within the Nigeria; consequently, the naira’s value will appreciate against the dollar. In addition, it would remove restrictions on the use of naira-denominated debit and credit cards for travellers outside the country and make black market foreign exchange trading unprofitable to many unscrupulous elements.
More importantly, experts say the new regime would lead to an increase in the much-needed foreign direct investment required to cushion Nigeria’s apparent slide towards an economic recession.
