The Central Bank of Nigeria (CBN), the country’s apex monetary authority, has announced a major change in its foreign exchange policy. The bank has removed the old naira-to-dollar rate from its website and replaced it with the rates from the investors and exporters (I&E) window, a market-based platform that allows buyers and sellers to trade foreign currencies at mutually agreed prices.
According to the CBN website, as of June 15, 2023, the bank quoted N632.77 per dollar from the I&E window, stating this as the rate “as at Wednesday, June 14, 2023”. This represents a significant depreciation of the naira compared to the previous official rate of N463 per dollar.
The website also showed that the British pound and the euro have appreciated against the naira, with N799.75 and N683.48 per unit respectively.
The CBN issued a circular on Wednesday, stating that all exchange rates in the country will now follow the “willing buyer, willing seller” arrangement at the I&E window.
This means that the CBN will no longer intervene in the foreign exchange market to stabilize the naira or maintain a fixed rate. Instead, the market forces of demand and supply will determine the value of the naira.
“The operational rate for all government-related transactions shall be the weighted average rate of the preceding day’s executed transactions at the I&E window, calculated to two (2) decimal places,” the circular read.
The policy brief, which was signed by Angela Sere-Ejembi, director of CBN financial markets department, also indicated that the CBN will continue to quote the “weighted average” rate of the transactions from the previous day at the trading window.
The new exchange rate system is a major departure from the previous regime of multiple exchange rates that created confusion and arbitrage opportunities in the market.
The CBN had introduced the I&E window in 2017 to improve foreign exchange market mechanisms, deepen market liquidity, and ensure prompt execution and settlement of all forex transactions. The window was meant to complement other segments of the market such as the interbank, bureau de change, and retail outlets.
The move to adopt a single exchange rate system is seen as a positive step towards achieving a more transparent and efficient foreign exchange market in Nigeria. It is also expected to boost investor confidence, attract foreign capital inflows, and enhance economic growth.
However, some analysts have warned that the policy may also have some negative implications such as inflationary pressures, reduced purchasing power, and increased debt burden for the government and businesses.
Godwin Emefiele, who was recently suspended as governor of CBN by President Bola Tinubu over allegations of corruption and mismanagement of funds, had defended his multiple exchange rate policy as necessary to protect the naira from speculative attacks and external shocks.
He had also argued that a full float of the naira would be detrimental to the economy given its dependence on oil revenues and imports.
The acting governor of CBN, Folashodun Shonubi, has assured Nigerians that the new exchange rate system will be beneficial to all stakeholders and will promote stability and growth in the economy.
He has also urged Nigerians to support the policy and shun any attempt to sabotage it or spread false information about it.