CBN Grants Banks Authority to Trade Foreign Exchange Freely

In a significant development, the Central Bank of Nigeria (CBN) has issued authorization to commercial banks, allowing them to engage in the unrestricted trading of foreign exchange at market-determined rates. This move effectively empowers banks to sell forex based on prevailing market rates, marking a departure from the previous tightly controlled exchange rate system.

Notably, some banks have already set the USD to Naira rate within the range of N699 to N750, indicating that Nigeria is transitioning towards a freely floating exchange rate regime, aligning with President Bola Ahmed Tinubu’s commitment to unifying the country’s exchange rates.

In response to this development, Dr. Andrew Nevin, the Advisory Partner & Chief Economist of PricewaterhouseCoopers (PwC), shared his insights during an interview with Arise Television on Wednesday. Dr. Nevin emphasized that the unification of foreign exchange rates would have a profound impact on Nigeria, particularly in terms of bolstering investment opportunities within the country.

Dr. Nevin shed light on the prevailing situation, stating, “What has been happening is that CBN is taking dollars from the Federation’s account and providing them to privileged individuals at an exchange rate of N411 to the US dollar, while the actual market price ranges between N700 to N750 per dollar. Due to the lack of price transparency, it is difficult to ascertain the exact rate.”

See Also: How To Save Naira – CBN

He further elaborated, “This disparity has resulted in significant challenges, such as state governments struggling to meet their obligations, including payment of pensions. However, this development will address this fundamental issue, as state governments will now receive the full value for their dollars.”

Dr. Nevin emphasized the transformative effect of unifying the exchange rates, asserting, “This move will have a dramatic impact on the fiscal structure of the country, as we shift away from providing dollars to privileged individuals. We can expect enhanced investments, a more equitable utilization of Nigeria’s resources, and an improved business environment, ultimately strengthening Nigeria’s currency.”

For several years, Nigeria has maintained a tightly controlled official exchange rate as the country’s foreign exchange reserves dwindled to new lows. Under the previous system, the CBN upheld an artificial rate of $1/N462.

The CBN’s decision to grant commercial banks the authority to freely trade forex at market-determined rates marks a significant step towards a more liberalized and unified exchange rate regime in Nigeria. This move is expected to have far-reaching implications for the country’s economy, encouraging investment, and fostering a more equitable utilization of resources.

Source: Daily Post

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