(4 minutes read)
· Nigeria’s central bank is migrating to a single exchange rate
for the naira instead of the multiple exchange rate policy that
determined the value for the local currency, according to reports.
· The elaborate monetary exercise being carried out by the West
African country is to stem the impact of oil price decline, which has
eroded the country’s foreign exchange receivables since 2016, barring
a few occasions when oil prices increased.
Nigeria’s central bank is migrating to a single exchange rate for the
naira instead of the multiple exchange rate policy that determined
the value for the local currency, according to reports. In the process
of switch over to the new regime, Nigeria will merge the official
rate, the rate for importers and exporters and rate for
foreign-exchange bureaus, among others, to make the value of the
domestic currency against US dollar uniform, reports indicate.
Africa’s largest oil producer has seen its currency come under
pressure this year after oil prices slumped to around US$30 a barrel,
below the government’s US$57 target, amid global fight against the
spread of coronavirus and a price war between Saudi Arabia and Russia.
Earnings from sales of crude account for 90% of the foreign-exchange
earnings and more than half of government income of the country.
The elaborate monetary exercise being carried out by the West African
country is to stem the impact of oil price decline, which has eroded
the country’s foreign exchange receivables since 2016, barring a few
occasions when oil prices increased. Presently, the oil prices are
ruling at rock bottom –below US$30 per barrel-which may pose grave
problems to Africa’s largest oil producer, that counts on oil
resources both for boosting its GDP and exports. Of late, Nigeria is
focusing on agriculture and manufacturing to address the downward
revenue receipts from oil wealth. Experts feel that this would take
time to yield results.
The unconfirmed reports about the likely currency arrangement has come
since the central bank allowed the rate at the importer and exporters
(I&E) window to adjust in response to market developments. As a sequel
to this, the bank changed the rate at the window for foreign investors
to 380 naira per dollar from 366 naira per dollar. Many feel that this
step is a precursor to the convergence of all existing rates as it
removes the opaqueness of Nigeria’s foreign exchange policy.
The Nigerian central bank has allowed the official rate, which was
pegged at 307 naira to the dollar to weaken closer to the market rate.
This has allowed the government to up the naira earnings from oil. To
some extent, this adjustment would help the government to increase the
naira earnings against dollar.
Presently, Nigeria has a multiple exchange rates to stem the demand
for dollars, though the IMF has warned the country for adopting
multi-exchange system. The rationale of this system of having
multiple exchange system has been to supply cheap foreign exchange
to government departments and select companies, including refined fuel
importers. The creation of importers and exporters window in 2017,
when naira was allowed to weaken after an economic contraction in 2016
was meant to address this problem. At the same time, it is widely felt
both within and internationally that the multiple exchange system was
inefficient and is prone to corruption. Many feel that transition to
simple, transparent and flexible float would be good for the country.
