In mid-June, the market forces were allowed by the Central Bank of Nigeria (CNB) to determine the exchange rates of the national currency naira. In four months, the naira weakened 8.9% to the dollar in the official market, according to media reports. The decline was the largest since June 20.
New foreign exchange rules, including a crackdown on illegal currency trading, are planned in Nigeria in order to help the Nigerian naira to reach a “fair price” by 2024 and to close its more-than-45% gap with the unofficial rate, Chairman of Presidential Committee on Tax Policy and Fiscal Reforms, Taiwo Oyedele said in an interview.
Oyedele highlighted that the authorities’ measures include eliminating a dollar demand backlog estimated at $6.7 billion, strengthening the naira forward market as well as the establishment of transparent rules for the official market operations.
In addition, the chairman noted that these steps aim to extend the official market to include all legitimate transactions, while eradicating the illegal “black market” for foreign currency.
“We think all of that will happen before December, and maybe in a matter of a couple of weeks we will begin to see the results, such that before the end of the calendar year, naira should find its true value, not the one that is being done currently in the parallel market,” Oyedele revealed.
According to the government, a “fair price” for the US dollar is 650 to 750 naira, he highlighted. As of Monday, the official exchange rate for the US dollar is 909.928 naira, the CNB said.
However, chief executive officer of Forward Marketing Bureau de Change Abubakar Mohammed stressed that in the parallel market, where buyers and sellers freely set the exchange rate, the national currency was traded at 1,165 on Monday.
Oyedele explained that the fact that official and parallel market rates diverge means that “you are sucking liquidity and supply from the official market to the parallel market, because everyone wants the premium.”
During a panel session at the Nigeria Economic Summit (NES), which took place on October 23-24, Nigerian Finance Minister Wale Edun revealed that the country expected to get $10 billion in the coming weeks, which will ease liquidity and eliminate the backlog of overdue forward contracts weighing on the naira.
As for other government’s measures, aiming to stabilize the national currency, according to Edun, the Nigerian President Bola Tinubu signed two executive orders last week, one of which will allow the issuance of dollar-denominated instruments for those living in Nigeria with dollars while another aimed at Nigerians outside the country and foreign investors.
Since mid-June, the naira’s exchange rate against the dollar is set through supply and demand, resulting in an unprecedented plunge of the national currency in the official market.
Source: Sputnik Africa