In what can be considered as a progressive move, the Federal Government has unveiled a sweeping plan to automate transactions across the entire foreign exchange market, a strategic response to the Naira’s alarming depreciation, which has now reached an unprecedented rate of 1,220 Naira to the US Dollar.
The announcement was made by the Minister of Finance and Coordinating Minister for the Economy, Wale Edun, during a high-profile panel session at the 29th Nigeria Economic Summit in Abuja.
Edun noted the gravity of the situation, emphasising that the automation initiative seeks to put an end to the rampant arbitrage and crack down on currency speculators who have been destabilising the Naira. This comprehensive approach will encompass all forex activities: from official transactions to the informal money-changers sector, where substantial arbitrage has persisted. Stricter monitoring will be imposed, and wrongdoers will face punitive measures.
As the Naira continues its descent, hitting an alarming exchange rate of 1,220 Naira per US Dollar in the black market, the urgency of these measures becomes evident. Merely three weeks ago, the US Dollar had breached the 1,000 Naira mark in the unregulated market.
Between September 27 and October 3, the parallel market held the Dollar at the 1,000 Naira level, while stability was observed in the investors and exporters (I&E) window.
While this is not the first time the Naira has faced volatility, the current downward trend appears to be sustained, with a concerning 25 percent devaluation over the past three weeks.
During the NESG summit, Minister Edun disclosed President Bola Tinubu’s signing of two pivotal executive orders. One of these orders facilitates the formal injection of cash into the economy to legally boost the money supply, while the other permits domestic issuance of foreign currency, encouraging foreign exchange provision from various sources.
Edun also outlined a vision to streamline and revamp the foreign exchange market, ensuring that all legal and legitimate transactions operate within the authorities’ purview, within the formal foreign exchange market. Transactions outside these defined parameters will be classified as illegal and treated as criminal offenses, facing penalties.
President Tinubu, in a move to regain investor trust, has also vowed to address the backlog of foreign exchange contracts. He then guaranteed the fulfillment of all future foreign exchange contracts.
It is important to acknowledge that the Central Bank of Nigeria (CBN) had sold forward contracts to Nigerian businesses, pledging to provide Dollars at agreed-upon prices in the future. The CBN, however, had not settled these contracts since February 2023, leading to a substantial backlog, estimated to be around $3 billion, in addition to unsettled foreign investors’ contracts.
CBN Governor Yemi Cardoso affirmed the commitment to price stability, and laid out plans to establish a foreign exchange market that is transparent and predictable.