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Nigerians reacted to the call by the country’s president to stabilize the economy by allowing market forces to set the currency exchange rate. Its central bank has discontinued its distorted administered foreign exchange rate, hoping to woo investors and stabilize the local currency
Nigerians reacted to the call by the country’s president to stabilize the economy by allowing market forces to set the currency exchange rate. Its central bank has discontinued its distorted administered foreign exchange rate, hoping to woo investors and stabilize the local currency. The announcement to peg the naira to market forces led to a record fall in the value of the currency to 755 per U.S. dollar. There was a slight recovery later.
Nigeria has for years operated multiple exchange rates for the naira. The official exchange rate was dictated by the central bank. A far higher unofficial rate is applied for paying imported commodities like wheat, which are priced in dollars.
The exchange rate now will be determined by market forces and no longer the central bank. Analysts said that the new mechanism would boost inflows of FDI and h Analysts feel that such a move would facilitate inflows of FDI in the long run, which also can rein in inflation. It is expected to make the price of imported goods more expensive.
Nigeria is heavily dependent on imports, particularly its foodstuff. The multiple exchange rates also meant foreign investors had been forced to sell outside currencies to Nigeria’s central bank at the official rate. They were unable to access foreign money amid the country’s severe dollar shortage. That affected many foreign companies, particularly foreign airlines.
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Since assuming power, President Tinubu has been taking some swift measures. He suspended Godwin Emefiele, the central bank governor who was under fire for pushing new currency notes that led to a critical lack of cash for people to pay for their everyday needs. He is presently under detention. He also halted subsidies for gasoline, forcing people to pay far more for fuel they need to travel and power generators at home. Now, the currency devaluation is expected to push up prices for imports like food amid a significantly higher foreign exchange rate. In the meantime, the president has put in place the key economic team chaired by Vice President Kashim Shettima, which will advise him on the country’s economic affairs.
