The Central Bank of Nigeria (CBN) has granted authorization to commercial banks to freely trade foreign exchange at any rate, giving them the power to sell forex at a market-determined rate. This decision marks a departure from the previously tightly controlled official exchange rate system.
Reports have emerged indicating that some banks have set the USD to Naira exchange rate between N699 and N750. This suggests that Nigeria is transitioning towards a freely floating exchange rate, aligning with President Bola Ahmed Tinubu’s commitment to rate unification.
Dr. Andrew Nevin, the Advisory Partner & Chief Economist of PricewaterhouseCoopers (PwC), shared his insights on the development during an interview on Arise Television. He emphasized that the unification of foreign exchange rates would have a profound impact on Nigeria, particularly by enhancing investment opportunities in the country.
Dr. Nevin shed light on the previous practice where the CBN provided dollars to privileged individuals at a fixed rate of N411 per US dollar, while the actual market rate ranged from N700 to N750 per dollar. This lack of price transparency created challenges, including state governments’ inability to meet pension obligations. However, with the new authorization, state governments will now receive the full value for their dollars, addressing this fundamental issue.
The Chief Economist of PwC highlighted that the development would bring about significant changes in Nigeria’s fiscal structure. By discontinuing the provision of dollars to privileged individuals, the country can expect improved investment, fairer utilization of resources, and a strengthened business environment. This shift towards a more transparent and market-based exchange rate system holds the potential to bolster Nigeria’s currency.
For years, Nigeria has maintained a tightly controlled official exchange rate, even as the country’s foreign exchange reserves dwindled. The CBN had previously maintained an artificial rate of $1 to N462. However, the recent authorization given to commercial banks signals a shift towards a more flexible exchange rate regime, fostering a market-driven approach.