Central Bank Begins Uniform Exchange Rate for Naira

Central Bank Begins Uniform Exchange Rate for Naira

Now ₦380 To $1

Nigeria’s financial institution will migrate to one rate of exchange for the naira by collapsing the multiple rate of exchange policy that determined the worth for the local currency, people with direct knowledge of the matter said.

The West African country will merge the official rate, the speed for importers and exporters and rate for foreign-exchange bureaus, among others, consistent with the people that asked to not be identified because they're not authorized to talk publicly about the matter.

Africa’s largest oil producer has seen its currency come struggling this year after oil prices slumped to around $30 a barrel, below the government’s $57 target, amid global fight against spread of coronavirus and a price competition between Saudi Arabia and Russia. Earnings from sales of crude account for 90% of foreign-exchange earnings and quite half government revenue .

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“Today we allowed the speed at the importer and exporters (I&E) window to regulate in response to plug developments,” said a senior financial institution official, confirming the bank changed the speed at the window for foreign investors to 380 naira per dollar from 366 naira per dollar.

This is an enormous breakthrough if it means a convergence of all existing rates because it removes the opaqueness of Nigeria’s exchange policy, Yvonne Mhango, sub-Sahara Africa economist at Renaissance Capital said by email.

The financial institution has also allowed the official rate, which was pegged at 307 naira to the dollar to weaken closer to the market rate. Government dollar earnings from oil will now be converted to naira at the upper rate, an enormous boost to revenues which has been hit by lower crude prices.

“It will cushion the impact the lower crude price will wear government income because it will increase the naira revenue Nigeria will get from oil exports,” Ayodeji Ebo, director at Afrinvest Securities in Lagos said by phone.

Nigeria operates a system of multiple exchange rates during a bid to regulate demand for dollars. The system, which has been criticized by the International fund , has kept the official rate at about 307 naira per dollar.

It uses this to provide cheap exchange to government departments and choose companies, including fuel importers. It created an importers and exporters window in 2017, during which the naira was allowed to weaken after an economic contraction in 2016.

There has long been a consensus among essentially everyone aside from the financial institution that their multiple rate exchange system was inefficient, unnecessarily complex, and susceptible to corruption, said John Ashbourne, Africa Economist at Capital Economics by email.

“Hopefully the transition to a more simple, flexible rate is that the initiative in unpicking the trade-destroying policies that have held back growth in recent years,” Ashbourne said.

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