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Finally! CBN decides on Naira devaluation (Read)

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CBN decides on Naira devaluation – Newspaper headlines for today, May 25, have focused on the Central Bank of Nigeria announcement of a flexible exchange rate regime aimed at making foreign currencies more accessible. This puts to rest reports of devaluation that would put the naira at N250 to a dollar A flexible exchange rate system is a monetary system that allows the exchange rate to be determined by supply and demand.

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A flexible exchange rate system is a monetary system that allows the exchange rate to be determined by supply and demand.

The implication of this is that with a high demand for the dollar in Nigeria, there is every likelihood that the naira will experience a further decline in the coming months.

We recall that CBN has been under pressure over the last few months to either devalue the naira or adopt a flexible exchange rate policy.

Vanguard reports that with the new regime of flexible exc

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It was gathered that the CBN took the measure following severe pressures on external reserve and foreign exchange supply crisis.

The action means that the CBN has now abandoned its fixed rate policy in favour of a flexible and multiple market model, which implied a floating exchange rate regime.

By the new exchange rate regime, CBN would allow the naira to float against the US dollar at the inter-bank market, rather than holding on to a fixed peg.

What this means, however, is that buyers of foreign exchange for importation of goods, holiday, school fees, medical tourism, online payments etc, will have to source from the inter-bank market-determined rates and will no longer be able to buy forex at N199 or whatever official rate the CBN decides to adopt. The development also means the parallel market would be suppressed.

Still on the flexible exchange rate, The Punch reports that the CBN governor Emefiele believes the time has come for the bank to introduce greater flexibility in the management of forex, as a result of the recent decrease of the country’s foreign exchange reserves.

He said all the members of the committee voted unanimously to introduce greater flexibility in the inter-bank forex market structure and to retain a small window for critical transactions.

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According to him, while the country awaits the new policy to be unveiled soon, the CBN will only fund critical transactions as the apex bank does not have enough foreign exchange to meet all the demand by users.

He added that those who desired foreign exchange should seek for it from autonomous sources. The governor also ruled out the possibility of the CBN providing foreign exchange to fund the operations of Bureau De Change operators under the new policy. Moving away from the CBN new policy,

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