Naira faces devaluation – investigation

According to the information obtained on the CBN website, the exchange rate data on the CBN macroeconomic indicator’s section has been removed and replaced with “The Naira exchange rate is market-determined“.

The website has reflected this change since May, leading some analysts to opine that the CBN may have surreptitiously decided to float the naira.

But a further click into the link shows the exchange rate remained between N305 and N307, which is the Central Bank’s official rates. This has also been the same rate it has sold dollars for over two years since the last depreciation.

There are multiple exchange rates in Nigeria. The Central Bank’s official rate is (was) N305/$1 which is also published on its website and has been that way for years before the latest change depicted above.

Meanwhile, the parallel market (bureau de change) is the most patronized for individuals, travellers and even businesses. In the parallel market, price is specifically determined by market forces of demand and supply.

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Note that in 2017, CBN officially introduced a multiple exchange rates system, which added the establishment of the Investors’ & Exporters’ FX (I&E) window to the existing official bank rate.

According to CBN, the move was a continued effort to deepen the foreign exchange (FX) market and accommodate all obligations. “The purpose of establishing the I&E FX market is to boost liquidity in the FX market and ensure timely execution settlement for eligible transactions.”

In the I&E window, the supply of foreign currency to the window is done through portfolio investors, exporters, Authorised Dealers and other parties with foreign currency to exchange naira. Also, CBN is a participant to promote liquidity and ensure professional market conduct. The I&E window is market determined and is viewed as a major reason for the stable exchange rate currently seen in Nigeria.

While the CBN is yet to issue an official statement to the change in the Nigeria exchange rates system, what this suggests is that the CBN has finally accepted that the exchange rate will henceforth be determined by the forces of currency demand and supply.