Nigerian Central Bank Starts Uniform Exchange Rate for Naira
By Emele Onu and Alonso Soto
March 20, 2020, 12:18 PM EDT
Updated on March 20, 2020, 1:45 PM EDT
Bloomberg Africa

Nigeria’s central bank will migrate to a single exchange rate for the naira by collapsing the multiple exchange rate policy that determined the value for the local currency, people with direct knowledge of the matter said.


The West African nation will merge the official rate, the rate for importers and exporters and rate for foreign-exchange bureaus, among others, according to the people who asked not to be identified because they are not authorized to speak publicly about the matter.

Africa’s largest oil producer has seen its currency come under pressure this year after oil prices slumped to around $30 a barrel, below the government’s $57 target, amid global fight against spread of coronavirus and a price war between Saudi Arabia and Russia. Earnings from sales of crude account for 90% of foreign-exchange earnings and more than half of government income.

“Today we allowed the rate at the importer and exporters (I&E) window to adjust in response to market developments,” said a senior central bank official, confirming the bank changed the rate at the window for foreign investors to 380 naira per dollar from 366 naira per dollar.


This is a big step forward if it means a convergence of all existing rates as it removes the opaqueness of Nigeria’s foreign exchange policy, Yvonne Mhango, sub-Sahara Africa economist at Renaissance Capital said by email.

The central bank has also allowed the official rate, which was pegged at 307 naira to the dollar to weaken closer to the market rate. Government dollar earnings from oil will now be converted to naira at the higher rate, a huge boost to revenues which has been hit by lower crude prices.

“It will cushion the impact the lower crude price will have on government revenue as it will increase the naira revenue Nigeria will get from oil exports,” Ayodeji Ebo, managing director at Afrinvest Securities in Lagos said by phone.


Nigeria operates a system of multiple exchange rates in a bid to control demand for dollars. The system, which has been criticized by the International Monetary Fund, has kept the official rate at about 307 naira per dollar.
It uses this to supply cheap foreign exchange to government departments and select companies, including fuel importers. It created an importers and exporters window in 2017, in which the naira was allowed to weaken after an economic contraction in 2016.

There has long been a consensus among essentially everyone other than the central bank that their multiple rate exchange system was inefficient, unnecessarily complex, and prone to corruption, said John Ashbourne, Africa Economist at Capital Economics by email.

“Hopefully the transition to a more simple, flexible rate is the first step in unpicking the trade-destroying policies that have held back growth in recent years,” Ashbourne said.

Hopefully the transition to a more simple, flexible rate is the first step in unpicking the trade-destroying policies that have held back growth in recent years,” Ashbourne said.

ehbellsho:
I am trying to understand but still can't/don't get it.
pls, anyone with the summary package?

imiski:
Some select individuals and organisations used to buy the dollar at 307 naira as opposed to the normal exchange rate you and I would buy in the market. But now the central bank says no more consentions all of us would buy at the same rate.

agbari1:
What this means is that dollar was exchanged BY CBN for importer AT N357 and N307 for exporter. This means you you pay more Naira to get dollar if you are importing. This goes for payment of school fees abroad and other goods and services. Black market operators also get dollar from CBN at 357 to 1 dollars. That is why at black markets the exchange rate hovers around 358 to 362 to one dollar during the period. Government receives dollar from the sales of her oil which is kept by CBN. Projected budget of government for 2020 is based on oil benchmark price of 57 dollar per barrel. The price of oil has fallen in the global market to below $30. This means that government revenue has fallen substantially as oil accounts for about 90% of export earnings. In order to get more Naira to pay for internal spendings in the country such as payment of salaries and contractors, government must get more Naira. In doing so, quantity of Naira to be exchanged for dollar must be increased. Government doesn’t want to use the term “devaluation” hence it used exchange rate equalization. This means that no more 307, 357 Naira exchange to the dollar anymore but N380 for all multiple exchanges to a dollar. So our official rate to one dollar is now N380. Black market operators will be selling at amount higher than this may be N400 to one dollar depending on the availability of dollar in the market. Remember that over 50 oil cargo of Nigeria is on the see without willing buyers ad the demand for oil has reduced in the international market. The price is on the free fall because of Saudi and Russia price and output war. If the price of oil falls further to say $20 per barrel, Naira nearly collapse. Government may ban importation of less essential goods. It may go and borrow money from from international financial institutions such as IMF with stringent measures. It may devalue the currency further. Those with fixed income will be worse off. Prices of goods and services will go up. Demand for goods and services will fall. It will affect company revenue and lead to job loses.

CanadaOrBust:
Someone should explain this.
Does it mean no more black market??

ehbellsho:
I am trying to understand but still can't/don't get it.
pls, anyone with the summary package?

Lifestone:
We were promised exchange rate of $1.00/N1.00
This is scam!

Smartchoiice:

Means devaluation of the Naira

post=87624249:


Anything that will move our darling nation forward at this perilous period and much after is what we are after.

This too shall pass.