Tuesday, March 21, 2017

Central Bank of Nigeria (CBN) strategy of dollar injections into the official government exchange rate market further appreciates the Naira against the US dollar.

ICMS, Inc Reports
By Tom Okure, Ph.D

Nigerian currency: the naira
The Nigerian Naira exchanged this afternoon at 430 Naira to one US dollar according to abokiFX a website which tracks Nigeria’s Naira daily exchange rate against the US dollar, British pound and the European dollar. 

Foreign exchange market watchers have seen a steady and purposefully strengthening of the Naira over the last month by the actions of the Central Bank of Nigeria (CBN) through a strategy of dollar interventions on the official foreign exchange market seeking to reduce the exchange rate range with the unofficial retail black market.

The strategy of CBN appears to be working since it started selling millions of US dollars through currency forwards into the official exchange rate market designed to eliminate the demand backlog and narrow black market rates which one will recall exchanged as high as 528 Naira to the US dollar in February, 2017. According to CBN, the injection of adequate dollars to meet market demand allows eligible individuals with genuine foreign currency needs and legitimate purposes to request and obtain foreign exchange from their banks and government authorized dealers at the official exchange rate. 

The central bank strategy of dollar injections to address dollar shortages in the market seems to be directed at achieving some type of market based exchange rate regime, without actually allowing the Naira to freely float. One thing is clear, the Naira appreciation against the dollar and other major currencies over the last month, appears to be directly related to the decline in dollar demand due to increased dollar supply by the CBN.

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