On June 14, 2023, the Central Bank of Nigeria (CBN) issued a press release announcing new operational changes to the foreign exchange (forex) market. These changes, in summary, mean the CBN wants a unified exchange rate policy.
Most of the press release is filled with jargon that might be difficult to understand. We went through it to explain the parts that matter to you. We’ve also looked at the winners and losers of this new policy.
What are the highlights of this new policy?
The CBN is abolishing segmentation. As financial commentator Shuyi Olutimi explains, we operated in multiple market segments, including the interbank market, where commercial banks trade forex. The CBN, being the regulator of the banks, fixed the price daily.
There’s also the Bureau De Change (BDC) which comprises institutions recognised by the CBN to trade currency. These guys typically profit by selling on the parallel market, commonly known as the black market. Then we have the Investors & Exporters (I&E) window, a market established by the CBN in 2017 that allows more liquidity (cash) in the forex market to settle more significant transactions quickly.
The CBN is collapsing all these markets into the I&E window under a model called “willing buyer, willing seller.” This means the CBN no longer sets an official rate—everyone trades freely on an open market. Business Travel Allowance or Personal Travel Allowance (BTA/PTA) applicants will no longer get special subsidies on the dollar, the same as foreign students. Oil marketers will also have to get their FX via this window.
One significant implication is that arbitrage—taking advantage of price differences in currencies to make fast money—will no longer be attractive. Financial institutions are not allowed to have a spread, or profit, of more than ₦1 in this market.
At the I&E window, the naira ended at ₦664.04 per dollar yesterday, according to the FMDQ Securities Exchange. This marks a significant 29% depreciation compared to Tuesday’s rate of ₦471.67 per dollar.
Who are the losers?
Not everyone is excited by this news. Beyond some mentioned earlier, here are a few people who would feel the pinch.
Aliko Dangote
Africa’s and Nigeria’s richest man, Aliko Dangote, is by far the runaway loser here. The announcement of the exchange rate unification caused the naira to lose value and Dangote’s wealth to tank considerably. Nairametric reports that the billionaire’s wealth fell by $3.12 billion to $17.8 billion in one day. You see? The rich also cry.
The FG and, ultimately, you
Remember how we all wailed that Buhari and his cohorts threw Nigeria into debt? Well, that debt just got even bigger. Before the reunification, the public debt stood at around ₦73 trillion. The CBN’s announcement and subsequent naira devaluation have shot the debt up to ₦82 trillion. And you know what happens when debt goes up? The government passes the cost down to you in various ways, including, you know, taxes.
Fuel price and you, again
Don’t kill the messenger; I’m just doing my job. According to Taiwo Oyedele, the Fiscal Policy Partner and Africa Tax Leader at PwC, the unification would lead to a “possible impact on the pump price of petrol which could inch closer to the current pump price of diesel.” I know you think petrol is expensive, but have you seen the diesel price? Hmm.
Who are the winners?
The CBN’s announcement is excellent news for some people. Let’s run through a few of them.
Foreign investors
Following the campaign mantra of President Tinubu, foreign investors will have renewed hope in Nigeria. Knowing there’s a uniform exchange rate means investors don’t have to worry about repatriating their funds at a loss due to the disparity in exchange rates. Credit rating agencies may review our ratings positively. Foreign portfolio investment in Nigeria’s capital market will also rise.
The FG
Financial experts project that revenues to the federal government from government-owned enterprises will shoot up significantly with this news, rising by as high as 39%.
You—in the long run
The most crucial signal this policy sends out is stability. The average Nigerian will bear hardship in the short term, but in the long term, the Nigerian economy should become robust. That is, provided the FG follows through with implementing secondary policies that ease the burden passed on to ordinary Nigerians, such as unbanning the list of items prohibited for FX and an upward review of the minimum wage.
What else should you know?
The CBN set up the Naira4Dollar scheme in 2021. It was an incentive that gave ₦5 for every dollar you received to increase dollar inflow into the Nigerian economy. The CBN now says the “Father Xmas” promo will end on June 30. Do with that information whatever you will.
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