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Nigeria lets market set currency exchange rate to stabilise economy, woo investors

Published:Thursday | June 15, 2023 | 12:24 PM
A trader counts US Dollars inside a shop in Lagos, Nigeria. Monday, June. 20, 2016. Nigeria's central bank has unified all foreign exchange rates, removing a significant distortion in the financial market in the latest move by policymakers in Africa's biggest economy to woo investors and help stabilize the local currency, Angela Sere-Ejembi, director of financial markets at the Central Bank of Nigeria, said on Wednesday, June 14, 2023. (AP Photo/Sunday Alamba, File)

ABUJA, Nigeria (AP) — Nigeria's central bank has ended its distorted foreign exchange rate, a move the new government in Africa's biggest economy hopes will help woo investors and stabilise the local currency.

The announcement Wednesday from the Central Bank of Nigeria led to a record fall in the value of the naira currency to 755 per US dollar.

It has since recovered some.

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

He also has removed the head of the central bank following divisive policies and ended fuel subsidies, which economists have lauded as a long-term benefit even as they cause people short-term pain.

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

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

But it also is expected to make the price of imported goods more expensive, which could affect many in a country heavily reliant on imports.

“The multiple exchange rate regime was a major distortion to the workings of the market, such that there was no level playing field for many actors,” said Taiwo Oyedele, Fiscal Policy Partner and Africa Tax Leader at financial services firm PwC.

The policy led to trading that exploited the price differences between the two markets “at the expense of legitimate economic activities,” Oyedele said.

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