On Wednesday, the Central Bank of Nigeria, CBN, announced the floating of the country’s currency, Naira.
Since then, several people have asked the meaning and implication of the new policy.
Here are eight implications of the new regime as copied from a forum called Naijahottestgist, which we felt our readers can draw something from.
1) Activities and trades on the black market will drop as people will start buying from the inter-bank market.
2) The foreign exchange market will be flooded with liquidity in due course. Some volatility is anticipated as the market takes shape and tracks how liquid the market will be.
3) This means Naira will crash against dollar at the official market. In other countries where a full float was launched, the value of the currency of the home country did plummet woefully before it found its level.
4) However, the rates between the interbank market and the parallel market did narrow which is expected to also happen in Nigeria.
5) Although, the CBN Governor, Godwin Emefiele, did not dwell on the controls currently in place such as limits to withdrawals of dollars from bank domiciliary accounts or spending limits when abroad, these limits are expected to be removed in due time as the market becomes more liquid.
6) The CBN essentially threw BDCs under the bus, restricting dollars sale from the interbank market from them.
7) What this also means is that if you own cash dollars then you have a choice of either depositing it in a bank or selling to Bureaux De Change (BDCs). If you want to buy without filling in all the requirements banks may ask you for such as your passport, then it’s probably the BDC you want to go to.
8) Bureaux De Change is officially a cash and carry market where major transactions can no longer take place. The incentives for banks to round trip and sell to BDCs are effectively removed since the interbank is market driven and more liquid.
As per the new naira-dollar rate, the CBN Governor, said it will be known when the market opens officially on Monday, June 20, 2016.
