Jun 16, 2016

Nigeria allows naira to float against US dollar

Nigeria will allow the embattled naira to trade freely in a move to control the currency crisis in Africa’s most populous nation.

The new system will come into effect on 20th June and is expected to lead to a significant devaluation of the naira.

Being a major oil exporter, Africa’s biggest economy has taken a hit from the fall in commodity prices.

The fixed currency rate had created a vast black market for US dollars and squeezed the country’s economy.

Nigeria’s central bank had long been expected to allow the naira to be more flexible and trade at a market-driven rate.
The naira is fixed at 197 to the US dollar, but the black market rate has soared to 370 in recent months.

The currency fix was introduced in February 2015 to stop the naira from falling when lower oil prices sparked trouble for Nigeria’s economy.

But a prolonged period of holding a currency at an artificial level often has a disruptive effect as foreign companies become reluctant to import goods when they are paid at distorted levels.
Recession worries

In May, Nigeria’s central bank governor had warned a recession was “imminent”.
A lower value of the naira will make domestic products cheaper and competing imports more expensive, which is hoped to help the struggling economy.

Companies have suffered from the crisis, being forced onto the black market to pay for imports of goods and equipment.

The expected devaluation is thought to also bring back investor confidence as foreign companies had found it increasingly difficult to do business in Nigeria.

A number of foreign airlines recently stopped flying to Nigeria after they were unable to repatriate up to $600m (£417m) in ticket sales, according to the International Air Transport Association (IATA).

Source: BBC

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