Nigeria is in the process of implementing new foreign exchange regulations, with a focus on curbing illicit currency trading. The government aims to close the more than 45% gap between the official exchange rate and the unofficial rate by the end of the year. Taiwo Oyedele, chair of the presidential committee on fiscal policy and tax reforms, outlined the government’s plans.
These include clearing a backlog of approximately $6.7 billion in dollar demand, strengthening the naira forward market, and establishing transparent rules for the official market. The government also intends to expand the official market to cover all legitimate transactions while addressing the illicit parallel market for foreign currency.
Oyedele expressed optimism that these measures will result in the naira finding its true value, with a target range of N650 to N750 per dollar. This compares to the official exchange rate of around N800 per dollar. Nigeria’s decision to allow its currency to trade more freely against the dollar in June resulted in a devaluation of about 40%, intending to attract more dollar inflows and improve liquidity.
The divergence between official and parallel-market rates has been causing liquidity and supply imbalances. Nigeria anticipates receiving $10 billion in inflows in the coming weeks to alleviate liquidity challenges and clear the backlog of overdue forward contracts.
The government has also introduced executive orders to reduce dollar outflows from the official foreign exchange window into the parallel market. These orders allow for the issuance of dollar-denominated instruments and bonds targeted at Nigerians with dollars and foreign investors.
The central bank has been working on clarifying market operations to address speculative activities and ensure stability. Despite fluctuations, the naira recently appreciated on the parallel market, closing at N110 to the dollar, while the official Investors and Exporters (I&E) window saw a weaker rate of N993.82/$. In an effort to attract investors and combat rising inflation, Nigeria conducted a one-year Open Market Operations (OMO) bill auction with a record-high interest rate of 21%. This signalled the country’s willingness to allow interest rates to rise.
