Float it or sink it, Naira is DEAD! And Buhari KILLED it as he is killing Nigeria

Float it or sink it, Naira is DEAD! And Buhari KILLED it as he is killing Nigeria

      








 Nigeria has finally bowed to the inevitable.

Battered by the oil plunge, starved of foreign currency and with the economy headed into recession, Africa’s second-biggest crude producer said Wednesday it will allow the naira to float, setting the stage for the currency to weaken. Free trade in the naira, set for Monday, will mark the end of more than a year of resistance by President Muhammadu Buhari, who reiterated his opposition to devaluation as recently as two weeks ago.

The Central Bank of Nigeria has eliminated the official exchange rate for the naira, replacing it with a new forex policy which is “purely market-driven.” 

However local and foreign financial experts, who welcomed the new policy, say it is, technically, a byword for currency devaluation.

The naira was officially pegged at 197 to the U.S. dollar but experts now agree that it will fall sharply in the coming days to between N280 - N300 to the dollar.

Ten FX primary dealers will be appointed and notified by tomorrow.

The new policy will come into effect on Monday, CBN Governor, Godwin Emefiele said at a press briefing in Abuja yesterday.

He said the structure of the market would operate as a single market through the interbank autonomous window.

“The Exchange Rate would be purely market driven using the Thomson-Reuters Order Matching System as well as the Conversational Dealing Book,” he said.

But the governor said the CBN will participate in the market through periodic interventions to either buy or sell FX as the need arises.

“To improve the dynamics of the market, we will introduce FX Primary Dealers (FXPD) who would be registered by the CBN to deal directly with the Bank for large trade sizes on a two-way quotes basis.

“The new Primary Dealers shall operate with other dealers in the Inter-bank market, amongst other obligations that will be stipulated in the Foreign Exchange Primary Dealers (FXPD) Guidelines, which would also be released soon”.

According to the governor, the fall in oil revenue has led to a drastic fall in foreign reserves, from about US$42.8 billion in January 2014 to about US$26.7 billion as of June 10, 2016, equivalent to 60% within the period.

He said the monthly FX earnings have fallen from about US$3.2 billion monthly to current levels of below a billion dollars per month during the same period.

Despite having fallen, the FX reserve is still robust and able to cover about five months of Nigeria’s imports as against the international benchmark of three months. 

Domestic production of items restricted from the FX market is picking up nationwide, Emefiele said.