The naira fell to a historic low against the dollar last week as Nigeria’s new foreign exchange policy came into effect.
The policy, which the Central Bank of Nigeria announced on June 15th, 2023, ends the various and distorted rates that had been in place for years and allows the market to set the exchange rate of the naira.
Local and international investors applauded the decision since they had long asked for a uniform and flexible currency rate policy in Africa’s largest economy.
The naira, which has been under pressure due to low oil prices and diminishing foreign reserves, is also anticipated to benefit from the program by increasing the supply of foreign currency.
However, in the first full week of trading under the new system, the naira declined by 13.91%, closing at N770.17/$1 on Friday, June 23, 2023, as opposed to N663.04/$1 on Friday, June 16, 2023.
The naira also fell against other important currencies such as the euro and the pound sterling.
According to some analysts, the naira will stabilize over the next few weeks as more liquidity enters the market and sentiment rises.
Additionally, the CBN modified the way the currency market operated so that money in domestic accounts could be accessed without restriction.
The highest rate ever of N815/$1 which had never been seen since the window’s debut in 2018 was reached at the official Investor & Exporter Window during the week.
The Bola Ahmed Tinubu government, which took office on May 29, 2023, has a broad economic reform program, which includes a new foreign exchange strategy.
Nigeria’s economy, which has been severely impacted by the COVID-19 pandemic, insecurity, and corruption, has been promised a revival by the administration.
Additionally, the administration has pledged to diversify Nigeria’s economy away from its reliance on oil, which generates 60% of government revenue and about 90% of the country’s foreign exchange gains.
Agriculture, mining, manufacturing, and services have all been named as possible drivers of growth and job creation.