Nigeria Devalues Currency as Central Bank Moves to Unify Exchange Rates

By Terence Zimwara

Nigeria Devalues Currency as Central Bank Moves to Unify Exchange Rates

In a possible policy shift, the Central Bank of Nigeria (CBN) recently allowed the local naira currency to briefly drop to a new low of USD$1 for 419.75 nairas on May 14, 2021. However, by close of business the naira had recovered and was trading around 411.25. Before the latest adjustment, the naira had fluctuated between 380 and 381 to the dollar since July last year.

Unifying Multiple Exchange Rates

Meanwhile, a report in the Nigerian media has speculated that the seeming devaluation of the naira indicates that the CBN is now working towards “unifying multiple exchange rates.” According to the report, Nigeria operates multiple currency regimes and this often frustrates businesses. Consequently, some institutions including the World Bank have called for the unification of rates in order to attract investment into the West African state.

In the meantime, the Nigerian apex had (in addition to allowing markets to determine the exchange rate) already stopped availing data on the naira’s official rate since May 11, 2021. It is these moves that have prompted some Nigerian economic experts to speculate on the CBN’s next possible moves. In the report, one currency trader is quoted saying:

What the central bank is saying is that the (OTC) spot rate will be the official rate because that’s where the largest volumes trade.

Black Market Exchange Rate Unchanged

Besides the OTC spot rate, the Nigerian government has reportedly been using an exchange rate of 410 “for its business as it tries to boost earnings from crude sales.” On the other hand, the CBN recently revised the futures rate on the naira upwards to 435.81 for a 150-day futures contract.

In the meantime, it remains to be seen if the naira exchange rate adjustment will finally result in the black-market exchange rate dropping. At the time of writing, the naira exchange rate on the black market largely unchanged at 480 nairas for every dollar.

Do you think the official naira exchange rate adjustment will end the parallel market for this resource? Tell us what you think in the comments section below.