CBN Begins Gradual Harmonisation Of Exchange Rates

—Removes N379/$1 rate from website

The Central Bank of Nigeria (CBN) yesterday began gradual
harmonisation of exchange rates with the removal of N379/$1
official rate from its website.

The move by the apex bank is one of the first indications of
exchange rate harmonisation and tactical devaluation of the
naira.

The policy shift also confirmed longtime speculation that the
Nigerian Autonomous Foreign Exchange Rate (NAFEX) also called the
Investors’ and Exporters’ Forex Window is the default official
rate.

The apex bank had last adjusted the official exchange rate in
August 2020 to N379/$1. The exchange rate displayed on the website
has historically been referenced as the official exchange rate even
as multiple exchange rate regimes have for years dominated the
forex market.

However, all government transactions since 2021 have been
converted, using the prevailing exchange rate at the official NAFEX
window.

The CBN had last November devalued the naira by N6/$1 across all
exchange rate lines in line with the exchange rate unification
agenda of the apex bank as recommended by the International
Monetary Fund (IMF) and World Bank.

In a weekly exchange rate for disbursement of proceeds of
International Money Transfer Service Operators (IMTOs), all
authorised dealers, Bureau De Change (BDC) Operators and Service
Providers were advised to add N6 across all rates.

The naira exchanges at N411.25/$1 on the Investors and Exporters
(I&E) Window after the CBN extended its ‘Naira for Dollar’
policy to attract more foreign capital to the economy.

At the parallel market, the local currency exchanged at N484/$1,
weaker than N483/$1 it exchanged on Thursday.

CBN governor, Godwin Emefiele, said that in Nigeria, like other
emerging market countries and countries reliant on oil exports, the
decline in crude oil earnings, as well as the retreat by foreign
portfolio investors, significantly affected the supply of foreign
exchange into Nigeria.

Speaking at the 55th Annual Bankers’ Dinner in Lagos, the CBN
boss said the need to adjust for the decrease in supply of foreign
exchange led to the depreciation of the naira.

“With the decline in our foreign exchange earnings and
successive exchange rate adjustments, the CBN has continued to
implement a demand management framework, which is designed to
bolster the production of items that can be produced in Nigeria,
and aid conservation of our external reserves,” he said.

Emefiele explained that due to the unprecedented nature of the
shock, the apex bank has continued to favour a gradual
liberalisation of the foreign exchange market in order to smoothen
exchange rate volatility and mitigate the impact which rapid
changes in the exchange rate could have on key macro-economic
variables.

This, he said, was in line with the international best practices
in countries where managed float arrangements are in operation.

“At the same time, measures are being taken by the authorities
to improve our non-oil exports and other sources of foreign
exchange. These measures have helped to prevent a significant
decline in our reserves,” he said.

The International Monetary Fund (IMF) said exchange rate
rigidities have constrained the economy’s ability to absorb
external shocks.

The IMF insisted that restrictions on access to foreign exchange
for certain categories of goods and multiple exchange rates create
distortions in both private and public sectors’ decision making.
They discourage long-term investment, encourage smuggling and
provide avenues for corruption.

Moving forward, the Fund suggested removal of foreign exchange
restrictions, and full exchange rate unification in line with the
authorities’ Economic Recovery and Growth Plan (ERGP), will help
keep the parallel market premium low in a more sustained
manner.

—Removes N379/$1 rate from website

The Central Bank of Nigeria (CBN) yesterday began gradual
harmonisation of exchange rates with the removal of N379/$1
official rate from its website.

The move by the apex bank is one of the first indications of
exchange rate harmonisation and tactical devaluation of the
naira.

The policy shift also confirmed longtime speculation that the
Nigerian Autonomous Foreign Exchange Rate (NAFEX) also called the
Investors’ and Exporters’ Forex Window is the default official
rate.

The apex bank had last adjusted the official exchange rate in
August 2020 to N379/$1. The exchange rate displayed on the website
has historically been referenced as the official exchange rate even
as multiple exchange rate regimes have for years dominated the
forex market.

However, all government transactions since 2021 have been
converted, using the prevailing exchange rate at the official NAFEX
window.

The CBN had last November devalued the naira by N6/$1 across all
exchange rate lines in line with the exchange rate unification
agenda of the apex bank as recommended by the International
Monetary Fund (IMF) and World Bank.

In a weekly exchange rate for disbursement of proceeds of
International Money Transfer Service Operators (IMTOs), all
authorised dealers, Bureau De Change (BDC) Operators and Service
Providers were advised to add N6 across all rates.

The naira exchanges at N411.25/$1 on the Investors and Exporters
(I&E) Window after the CBN extended its ‘Naira for Dollar’
policy to attract more foreign capital to the economy.

At the parallel market, the local currency exchanged at N484/$1,
weaker than N483/$1 it exchanged on Thursday.

CBN governor, Godwin Emefiele, said that in Nigeria, like other
emerging market countries and countries reliant on oil exports, the
decline in crude oil earnings, as well as the retreat by foreign
portfolio investors, significantly affected the supply of foreign
exchange into Nigeria.

Speaking at the 55th Annual Bankers’ Dinner in Lagos, the CBN
boss said the need to adjust for the decrease in supply of foreign
exchange led to the depreciation of the naira.

“With the decline in our foreign exchange earnings and
successive exchange rate adjustments, the CBN has continued to
implement a demand management framework, which is designed to
bolster the production of items that can be produced in Nigeria,
and aid conservation of our external reserves,” he said.

Emefiele explained that due to the unprecedented nature of the
shock, the apex bank has continued to favour a gradual
liberalisation of the foreign exchange market in order to smoothen
exchange rate volatility and mitigate the impact which rapid
changes in the exchange rate could have on key macro-economic
variables.

This, he said, was in line with the international best practices
in countries where managed float arrangements are in operation.

“At the same time, measures are being taken by the authorities
to improve our non-oil exports and other sources of foreign
exchange. These measures have helped to prevent a significant
decline in our reserves,” he said.

The International Monetary Fund (IMF) said exchange rate
rigidities have constrained the economy’s ability to absorb
external shocks.

The IMF insisted that restrictions on access to foreign exchange
for certain categories of goods and multiple exchange rates create
distortions in both private and public sectors’ decision making.
They discourage long-term investment, encourage smuggling and
provide avenues for corruption.

Moving forward, the Fund suggested removal of foreign exchange
restrictions, and full exchange rate unification in line with the
authorities’ Economic Recovery and Growth Plan (ERGP), will help
keep the parallel market premium low in a more sustained
manner.