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Nigerian Reacts To The Currency Exchange Rate Set By The Market

Jun 26, 2023 - 09:32 AM Author - Axios Credit Bank


Nigeria’s central bank has recently ended its distorted foreign exchange rate, a move by the new government of Africa. The government of Africa’s economy hopes that this will help them woo investors and stabilise the local currency.

The central bank of Nigeria has ended the distorted foreign exchange rate, a move by the new government in Africa hoping that it will help to woo investors and stabilise the local currency. 

The central government of Nigeria made this announcement on Wednesday and it led to a record fall in the value of the naira currency to 755 per US dollar. It has recovered some since then. 

This move reflects the changes that new President Bola Tinubu has pledged to make to strengthen the ailing economy, analysts said.

Samuel Badejo, banker and resident of Legolas said, “The changes seem to be positive,” but he remains cautious about the results. He added, “ I don’t want us to judge quickly that he (Tinubu) has started acting, we just want to see what he will do for the first 100 days.

Nigeria has operated multiple exchange rates for the naira for several years with the official rate dictated by the central bank, while a far higher unofficial rate determined prices of imported commodities like wheat, which are priced in dollars.

The exchange rate will now be determined by the market forces and no longer the central bank. On Thursday analysts said that the move would boost inflows of money and help stabilise an economy battered by surging inflation and a record unemployment rate.

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It is also expected that it will make the prices of imported goods more expensive, which might affect many countries which are heavily reliant on imports.

Sam Chidoka. CEO of Kairos Capital said, “The government debt is also expected to rise due to some of the borrowings being in US dollars, which will lead to total debt to GDP also increasing.”

Multiple exchange rates meant that foreign investors had been forced to sell outside currencies to Nigeria’s central bank at the official rate and had been unable to access foreign money amidst the country’s severe dollar shortages.

It has affected, many foreign businesses including international airlines whose revenues were trapped in Nigeria amounted to $450 million as of June last year.

Tinubu has vowed that’ “The economic policies shall be guided by our desire for a stronger, more stable Naira founded upon a vibrant and productive real economy.

Shortly after he took over the office, Tinubu suspended Godwin Emefiele, the central bank governor, who was under fire for pushing new currency notes leading to a critical lack of cash for people to pay for their everyday needs. Since then he was arrested.

Tinubu also halted the subsidies for gasoline, forcing people to pay far more for fuel that is needed to travel and power generators at home.

The currency devaluation is expected to push up the prices for imports like food amid a significantly higher foreign exchange rate. The Nigerian leader, on Thursday, inaugurated a key economic team chaired by Vice President, Kashim Shettima, responsible for advising him on the country’s economic affairs.

Tinubu also suspended the head of the West African nation’s anti-graft agency for alleged abuse of the office.

Abdulrasheed Bawa was also suspended indefinitely as the chairman of the Economic and Financial Crimes Commission following the “weighty allegations of abuse of office levelled against him,” stated the Nigerian Presidency. Moments after his suspension, he was taken into custody by the country’s secret police in the capital of Abuja.

The move was related to the investigations into his activities, according to Peter Afunaya, spokesman for the Department of State Services of Nigeria. Prudent Odeh, another resident and travel consultant, said that “The changes were indicative of Tinubu trying to eliminate those people who are not competent in their position resulting in a better Nigeria.