The Central Bank of Nigeria (CBN) has once again devalued the local currency, the Naira.
According to 1st News, the CBN devalued the naira by 7.6% against the dollar.
The move comes as Nigeria’s apex bank attempts to migrate toward a single exchange-rate system for the Naira. Specifically, the CBN has replaced the fixed rate of 379 naira to a dollar used for official transactions with the more flexible Nafex; also known as the investors and exporters exchange rate. The Nafex has averaged 410.25 naira per dollar this year, based on data on its website on Tuesday.
Equally important, the development was confirmed by CBN Governor, Godwin Emefiele on Tuesday.
Emefiele, who spoke to reporters during the monetary policy briefing; disclosed that the move is in line with finding a unified rate.
“We found out that we were no longer dealing in this so-called CBN official rate for transactions. We are still running a managed-float. However, we are monitoring the market and seeing what is happening; for us to ensure that the right things are happening for the good of the Nigerian economy.”
The Nafex basically acts as a spot rate. It was introduced in 2017 to improve dollar liquidity and encourage inflows from foreign investors; many of whom were exiting Nigeria in the wake of the 2016 economic crisis.
Meanwhile, the CBN adopted the multiple exchange-rate regime to avoid an outright devaluation of the naira; by keeping a stronger-pegged rate for official transactions and weaker exchange for non-government related transactions. However, the currency management strategy has been heavily criticized by the International Monetary Fund. In addition, the World Bank held back a $1.5 billion loan to Nigeria in a bid to push for more foreign-exchange reforms.
Nigeria is battling to steady the ship after seeing revenues plunge in the wake of the COVID-19 pandemic.
The price of crude oil, the mainstay of the Nigerian economy, took a tumble last year, forcing the CBN to devalue the Naira twice. Crude oil actually contributes less than 10 per cent to Nigeria’s GDP. On the other hand, it is responsible for over 85 per cent of all foreign exchange earnings and about half of the Nigerian government revenue.