Nigerian currency hits record low after vice-president slates central bank

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The Nigerian naira.
The Nigerian naira.

The Nigerian naira weakened to a record low after the country’s vice president criticised the central bank’s exchange-rate policy and called for a rethink. 

The official rate at which the central bank sells dollars to investors and exporters, depreciated by 0.19% to 415.10 to the dollar on Wednesday compared with the Tuesday close of 414.30 naira, according to an emailed note by FSDH Securities. "Most participants maintained bids between 405 naira and 420.15 naira per dollar," FSDH Securities said. 

The current approach to managing the currency favours those able to obtain dollars at the official rate of 410 naira, because they can then sell the foreign currency on the parallel market at 570 naira, Vice President Yemi Osinbajo said in an emailed statement. The "massive difference discourages doing proper business, when selling the dollar can bring in about 40% profit," Osinbajo said.

The vice-president’s position sets him on a collision course with the central bank, which maintains tight control of the naira by keeping it within a preferred range. The currency has been devalued three times since March 2020.

Osinbajo’s stance contrasts with that of his boss, President Muhammadu Buhari, who last year ordered the bank not to supply foreign currency to importers of food and fertiliser to conserve dollar reserves and boost local production. Buhari has also previously warned against devaluing the currency because of the impact it could have on the cost of living in Africa’s most-populous country.

Under current policy, only authorised lenders are allowed to sell dollars to end-users at central bank-controlled rates. Those who are unable to obtain foreign currency use the parallel market, where money traders source and sell the dollars at more expensive rates determined by availability and demand.

That has created arbitrage opportunities between the official and the parallel market rates.

"The real issue confronting the economy on this matter is how to improve the supply of foreign exchange, but this will not happen if we do not allow mechanisms like the importers and exporters window to work," Osinbajo said. "If we allow this market mechanism to work as intended, we will find that the naira will appreciate against the dollar as we restore confidence in the system."

The Central Bank of Nigeria didn’t respond to a request for comment.  

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