When a nation's currency is free to float, supply and demand on the open market, rather than the government or a fixed exchange rate system, decide how much it will cost to buy and sell. The consequences of this include various things:

1. Volatility: The exchange rate can fluctuate quickly, sometimes even daily, as a result of market forces that determine it. It may be challenging for firms to plan and make investments due to this volatility's potential to breed uncertainty.

2. Competitiveness: A country's competitiveness may be impacted by a freely floating currency. A strong currency may make exports more expensive, which could reduce demand for the nation's products and services on the international market. A lower currency value, on the other hand, can increase export appeal and provide businesses a competitive edge.

3. Inflation: A country's inflation rate can be considerably impacted by the value of its currency. Increased import costs might result from currency depreciation, which will raise inflation. A strong currency might also result in lower inflation since imports are less expensive.

4. Interest Rates: The value of a currency can affect the interest rates in a nation. Investor desire for higher interest rates in a sinking currency may increase borrowing costs.

Overall, a freely floating currency can have advantages including increased monetary policy flexibility and the ability to adapt to external shocks, but it also needs to be carefully managed to reduce any risks and uncertainties.

The Central Bank of Nigeria (CBN) directed commercial banks to sell forex freely at market-determined prices on Wednesday.

This means that Nigeria has relaxed its grip on the naira, allowing it to float. There were differing opinions on whether the naira should be floated by the government.

When the International Monetary Fund (IMF) originally proposed the concept to Nigeria in 2022, many financial experts argued that it would be detrimental.

To be clear, the naira's free float means that the exchange rate is no longer determined by the government or a monetary institution such as the CBN.

It also implies that the exchange rate at any given point in time is controlled by the interaction of market forces of supply and demand for foreign exchange.

Simply expressed, the rate at which the naira is exchanged for any foreign currency is determined by the agreed-upon price between the buyer and seller. This would also be free of any CBN involvement in the form of regulations or policy.

When the plan was first proposed in 2022, experts warned that floating the naira would eventually lead to the currency's total collapse.

The move would also mean that the naira's value against all other currencies would continue to fall, eventually becoming worthless and causing a currency crisis in Nigeria.

They also predicted that it would have a detrimental impact on Nigeria's manufacturing and other exchange-rate-dependent industries, resulting in a negative supply shock.

A supply shock is an unanticipated incident that alters the supply of a product or commodity, resulting in a sharp price change.

A negative supply shock reduces output, which causes prices to rise at an alarming rate.

https://www.regencyreporters.com.ng/2023/06/what-will-be-impact-of-cbn-free.html

Mynd44 Nlfpmod

That will strengthen Naira more amongst other currency.

African countries are even considering acceptable note across Africa

As is today , the value of the Naira is likely to crash further to N1000 to a Dollar and will be mainly due to the speculative activities of black marketers

Any one that is intelligent will tell you that FOREX is scarce.
Nigeria doesn't have enough forex to sustain the economy.
Floating the naira will still not have any postive impact.

jmoore:
Any one that is intelligent will tell you that FOREX is scarce.

Nigeria doesn't have enough forex to sustain the economy.

Floating the naira will still not have any postive impact.

Is there ever a time you reach Aboki place, and Aboki tell you say $$$ no dey?

KingsCity:
As is today , the value of the Naira is likely to crash further to N1000 to a Dollar and will be mainly due to the speculative activities of black markers

Nothing like black market again, in fact every bank is now a black market

helinues:
That will strengthen Naira more amongst other currency.

African countries are even considering acceptable note across Africa

olodo

KingsCity:
As is today , the value of the Naira is likely to crash further to N1000 to a Dollar and will be mainly due to the speculative activities of black markers

Do you understand the meaning of floating of currency sha?

When those Aboki wey dey sell dollar for black market go be the first people to feel this

Parachoko:
Is there ever a time you reach Aboki place, and Aboki tell you say $$$ no dey?

Where does aboki get his dollars from

nedu666:


Where does aboki get his dollars from

You're quoting the wrong person

I do not know what you're talking about

KingsCity:
As is today , the value of the Naira is likely to crash further to N1000 to a Dollar and will be mainly due to the speculative activities of black markers

Nop Dear, Banks And CBN Will Be Able To Meet The Demand Side So There Is No Need To Patronise Black Market Unless Black Market Are Ready To Match The Prevailing Rate i.e If I Need To Pay My School Of $12,500 And My Bank Is Able To Sell For Me @ 755 Why Patronisr Black Market At 1,000

helinues:
That will strengthen Naira more amongst other currency.

Hmm, that will depend on whether the government can provide enough dollars to meet demand.

Any dollar scarcity will quickly push dollars close to or above N900.

If the scarcity is prolonged, N1000 to a dollar will become a new reality.

To the Op, the effect of a free float is that the value of the naira will go up or down more freely.

One immediate impact is that prices of some imported goods will increase.

If I tell you I am not nervous about the fate of the naira over the next few weeks and months, I would be lying.

That is not to say the policy is wrong.

My nervousness comes from the understanding that a totally free-flowing currency can take a catastrophic turn, particularly for a low exporting country like Nigeria.

I am surely hoping for the best.

sainsburry:


Nop Dear, Banks And CBN Will Be Able To Meet The Demand Side So There Is No Need To Patronise Black Market Unless Black Market Are Ready To Match The Prevailing Rate i.e If I Need To Pay My School Of $12,500 And My Bank Is Able To Sell For Me @ 755 Why Patronisr Black Market At 1,000

The problem here is the banks ability to match your demand

Parachoko:
Is there ever a time you reach Aboki place, and Aboki tell you say $$$ no dey?

Is Aboki the main supplier of us dollars?

That many banks placed restrictions on their dollar debit cards should give you a hint.

DeLaRue:


Hmm, that will depend on whether the government can provide enough dollars to meet demand.

Any dollar scarcity will quickly push dollars close to or above N900.

If the scarcity is prolonged, N1000 to a dollar will become a new reality.

To the Op, the effect of a free float is that the value of the naira will go up or down more freely.

It could also mean that prices of some imported goods will increase.

What's the meaning of dollar scarcity if not hoarding. Dollar is available any day any time but you see those who are behind stock exchange and the bankers are the ones who always do the tricks of dollar scarcity

When aboki buys all the bank dollars finish and bank said they have no usd again... this might make things get worse. I hope their are policies in place to check this. However it is a very good idea to allow market determine the Naira that is if there are no saboteurs

jmoore:
Any one that is intelligent will tell you that FOREX is scarce.

Nigeria doesn't have enough forex to sustain the economy.

Floating the naira will still not have any postive impact.

We have excess dollars in Nigeria.. A group are hoarding it cos of the CBN polices.

This will put an end to it, only if done properly.

helinues:


What's the meaning of dollar scarcity if not hoarding. Dollar is available any day any time but you see those who are behind stock exchange and the bankers are the ones who always do the tricks of dollar scarcity

You could be right, but your statement is largely irrelevant.

The forex market will not be interested in who or what is causing the scarcity. Whether it is cabals, witches, hoarders etc it will not matter.

All the market needs is the appearance of scarcity, buyers will attack the naira ruthlessly by scrambling to buy more dollars, and I tell ya, that will not end well for the value of the naira.

I can only assume that the President has Intel that there will be enough dollars at least until Dangote refinery comes fully on board.

From the little I have learnt while in school, most economies have a managed exchange rate regime. Fixed and floating exchange rate are two extremes and even America, manages their exchange rate. It's called dirty floating.

Jackossky:
From the little I have learnt while in school, most economies have a managed exchange rate regime. Fixed and floating exchange rate are two extremes and even America, manages their exchange rate. It's called dirty floating.

You are correct.

I suspect the government will not allow the naira completely free float.

If the government allows it, the naira will be destroyed within 3 months.

Sharks are lurking waiting for which currency to attack. The naira will become a prime target if it is allowed 100% free float.

I suspect the government will still keep an eye on the value of naira vs dollars, and if it is falling too much, they will push out more dollars in order to support th naira.


A few things need to align for Nigeria in the coming weeks and months for the policy not to cause extreme pain.

People should be reminded that the Egyptian pounds lost 50% of its value last year alone. Egypt is a large economy like Nigeria.

Things can happen to a currency o.

Let's hope for the best.

sainsburry:


Nop Dear, Banks And CBN Will Be Able To Meet The Demand Side So There Is No Need To Patronise Black Market Unless Black Market Are Ready To Match The Prevailing Rate i.e If I Need To Pay My School Of $12,500 And My Bank Is Able To Sell For Me @ 755 Why Patronisr Black Market At 1,000

Good analysis, now guess where the problem is?


CBN doesn't have enough dollar to meet Nigerians' usd demands, remember we are import dependent country.


Nigeria doesn't earn enough FX through increased export to meet up with the dollar demand of Nigerians, which means many Nigerians will be going to Aboki for dollar and Aboki will be determining the rate based on demand of dollar for the day.



This dollar floating policy is good but it would have been better done after putting certain things in place to ensure CBN earns or have enough dollar to supply to all banks to sell to Nigerians.



One of those things is putting our local refineries in working condition and leasing them out to private entities to run for Nigeria to reduce importation of petrol which gulps most of our dollar.

jmoore:

Is Aboki the main supplier of us dollars?

That many banks placed restrictions on their dollar debit cards should give you a hint.

jmoore:

Nigeria doesn't have enough forex to sustain the economy.

Is there ever a time you tell Aboki you wan buy dollar and you no get am?

I need to sleep and come back to read this... I no understand anything

helinues:


Do you understand the meaning of floating of currency sha?

When those Aboki wey dey sell dollar for black market go be the first people to feel this

Leave the Obidunze Orchin

On the long run, Aboki price fit cheap pass Bank price sef because nah them and the financial institutions go dey compete on equal level now, the CBN no handicap the Banks again.

The Banks will run a lot of Aboki out of business

The question here is what are we exporting?

Parachoko:
Is there ever a time you reach Aboki place, and Aboki tell you say $$$ no dey?

Let him go to Kano International Airport to meet Ganduje’s forex mallam.

sholay4star:
The question here is what are we exporting?

Your question should be, what am I doing to earn foreign exchange?

Dollars are aways available in abundance, commercial banks and CBN are the ones selling to black market.

Go to any bank around Queen cinema Ibadan, you will see those Alhaji siting inside bank buying and selling forex at Black market rate. If not for their mode of dressing, you will think they are bank staffs because they enter different sections/offices at will.

savcy:
The naira eased at N668-$1at the I&E window today. I don't anticipate a drastic loss in value of the naira at all, and among many reasons, it's the fact that people don't seem to understand that no one actually knows the true value of the naira. Yemi Osinbajo mentioned once that, if export volume determined strength of currency, why didn't the naira gain value when oil hit north of $95/b. Several unconventional factors determine the value of the naira with the BDCs being the principal element in the intricate structure that's the Nigerian FX market. Artificial scarcity is another culprit. I think the market would stabilize, and if a rapid loss in value ensues, the government knows precisely what to do. All in all, as scary as it may seem, the policy is a step in the right direction.

Exactly, I don't see much problem about this policy considering the fact that the free falls of Naira in recent time were mostly artificial. Besides, genuine manufacturers and importers already got used to black markets rate of 700+.

sainsburry:


Nop Dear, Banks And CBN Will Be Able To Meet The Demand Side So There Is No Need To Patronise Black Market Unless Black Market Are Ready To Match The Prevailing Rate i.e If I Need To Pay My School Of $12,500 And My Bank Is Able To Sell For Me @ 755 Why Patronisr Black Market At 1,000

the problem is, can you bank be able to have enough supply of forex to meet your forex needs?

Most policies in Nigeria are not based on our unique position as a nation but rather brash approach.

When a previous government uses a particular policy and it doesn't work, the preceding administration will go directly opposite without first finding out what made the policy not to work.

As a consumer nation, our demand for forex is sky-high and it is our greatest undoing.

We don't have stable power,we don't have functional refineries,we don't have steel manufacturing plants,we don't have capacity to produce our own food but we're floating our currency and allowing market forces to determine the rates.

What this will mean is that in the next one year,trades will be calculated in dollars and our local currency will be next to nothing.


Do not expect Nigeria people not to take advantage of the situation. It's purely business and as humans,we will take maximum advantage

sapele914:
Your question should be, what am I doing to earn foreign exchange?

I'm into agriculture, I export agricultural product even though my product is needed here too and my survival is not resting of fx