The official exchange rate between the Nigerian currency and the US dollar has recently experienced a significant decline, dropping to NGN634 per dollar from its previous value of just under NGN470 per dollar. This sharp devaluation occurred after the central bank made the decision to allow the naira to adopt a “floating” exchange rate system, which came a few weeks after Nigerian president Bola Ahmed Tinubu promised to eliminate the Central Bank of Nigeria’s (CBN) multiple exchange rate regime.
Devaluation of the Naira
On June 14, the Nigerian currency witnessed an all-time low against the US dollar, reaching NGN634 per greenback. This depreciation of over 30% occurred shortly after the Central Bank of Nigeria (CBN) denied reports of devaluing the exchange rate to NGN631 per dollar from the previous NGN470 per dollar. The central bank’s choice to introduce a flexible exchange rate system coincided with President Tinubu’s commitment to ending the CBN’s multiple exchange rate regime.
Prior to the apparent devaluation by the central bank, the Nigerian apex bank had maintained an exchange rate of below NGN500 to USD1 for over a year. During the same period, the naira’s exchange rate fluctuated between NGN600 and NGN800 per dollar. Throughout this time, the CBN consistently rejected calls for naira devaluation.
However, after assuming office on May 29, President Tinubu’s actions led many in Nigeria to speculate that the CBN was headed towards devaluing the naira. For some, Tinubu’s sudden suspension of CBN governor Godwin Emefiele served as evidence of his intention to fulfill his inauguration day pledge.
Meanwhile, on June 16, the CBN attempted to clarify the need for a flexible foreign exchange rate through a tweet aimed at Nigerian residents and businesses. The central bank explained that the import and export market operates based on a willing buyer-willing seller system, where entities in need of foreign exchange seek out other entities possessing foreign currency to sell at an agreed-upon price through authorized dealers. The CBN also announced the cessation of other foreign exchange rate regimes in the country.
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Frequently Asked Questions (FAQs) about Nigerian currency devaluation
What caused the significant decline in the Nigerian currency’s exchange rate?
The Nigerian currency’s exchange rate experienced a significant decline due to the central bank’s decision to allow the naira to adopt a “floating” exchange rate system. This change was implemented after Nigerian President Bola Ahmed Tinubu pledged to end the Central Bank of Nigeria’s multiple exchange rate regime.
How much did the Nigerian currency devalue against the US dollar?
The Nigerian currency devalued by more than 30% against the US dollar, reaching an all-time low of NGN634 per dollar. This depreciation occurred shortly after the Central Bank of Nigeria (CBN) denied reports of devaluing the exchange rate to NGN631 per dollar from the previous NGN470 per dollar.
Was there speculation about the devaluation of the naira prior to these events?
Yes, there was speculation about the devaluation of the naira before these events. After President Tinubu assumed office, some in Nigeria speculated that the Central Bank of Nigeria (CBN) was moving towards devaluing the currency. Tinubu’s suspension of CBN governor Godwin Emefiele added weight to this speculation and suggested his commitment to fulfilling his pledge.
What is the rationale behind introducing a flexible foreign exchange rate?
The Central Bank of Nigeria (CBN) introduced a flexible foreign exchange rate system to create a willing buyer-willing seller market, where entities with foreign exchange demands seek out other entities with foreign currency to sell at an agreed-upon price through authorized dealers. This system aims to provide more flexibility and transparency in foreign exchange transactions.
What impact will this have on other foreign exchange rate regimes in Nigeria?
The Central Bank of Nigeria (CBN) announced that other foreign exchange rate regimes in the country would cease to exist. This indicates a consolidation of the exchange rate systems and a move towards a unified and flexible exchange rate system for the Nigerian currency.
More about Nigerian currency devaluation
- Nigerian Currency Plunges as Central Bank Implements New Forex Market Rules
- President Tinubu’s Pledge to End Multiple Exchange Rate Regime
- Central Bank of Nigeria (CBN) Denies Devaluing Naira
- Understanding the Flexible Foreign Exchange Rate System
- Consolidation of Foreign Exchange Rate Regimes in Nigeria