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The Tinubu Administration to Allow Market Forces to Determine the Value of the Naira

The Central Bank of Nigeria recently announced changes to the way the country’s foreign exchange market will work. Foreign currencies can now be bought and sold at rates determined by the market – not by the central bank. In the past, there were multiple exchange rates for the currency. The International Monetary Fund has repeatedly called on Nigeria to end this. The huge gap between the official and unofficial rates caused severe shortages of foreign exchange by discouraging supply. In general, the existence of multiple exchange rates signals a dysfunctional economy. It erodes investor confidence. Capital does not flow in and foreign exchange becomes scarcer. This is not the first time Nigeria will be liberalising the foreign exchange market. The first was in 1986; further efforts followed in 1995, 1999 and 2016. All were marred by various impediments. The three key problems that afflict Nigeria’s foreign exchange market are the lack of transparency, foreign exchange shortages and volatility.