In a recent development, the Nigerian naira experienced a slight improvement, recording a marginal gain of N1 to close at N791/$ in the official Investors and Exporters (I&E) window.
This positive shift came after the local currency closed at N792/$ in the same window on Monday. However, the parallel market witnessed a different trend, as the naira continued to depreciate, closing at N870/$.
Economic analysts have attributed the pressure on the naira to an ongoing dollar crush and illiquidity in the parallel market. They suggest that the Central Bank of Nigeria (CBN) should take measures to deepen dollar liquidity in the official market, thereby reducing pressure in the parallel market.
Data from FMDQ Exchange revealed that the total turnover at the I&E window stood at $51 million by the close of the market, indicating a notable level of foreign exchange activity.
Notably, the Central Bank of Nigeria (CBN) made a significant move in unifying all exchange rates into the I&E window, allowing market forces to determine the exchange rate for the naira. This policy shift put an end to decades of multiple exchange rate regimes, streamlining the forex market and encouraging transparency.
Nigeria’s newly elected President, Bola Ahmed Tinubu, made a series of bold reforms, including the directive to unify all exchange rates, upon his inauguration. This decision collapsed various exchange rates, such as the International Air Transport Association (IATA) rate, parallel market rate, Interbank Exchange Rate, and Bureaux De Change (BDC) rate, into the Investors & Exporters (I&E) window.
As a result of the unification, all dollar applications for purposes like medical expenses, school fees, Business Travel Allowance/Personal Travel Allowance, and SMEs are now processed through the I&E window, where rates are determined by market forces. This window has been active since June 2017 and represents the broader forex market, where dollars sourced from autonomous sources are traded between authorized dealers, clients, and the CBN.
Furthermore, the I&E window serves as the underlying market for the FMDQ Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) benchmark. The rate at this window now stands as the official rate for the naira, effectively eliminating multiple exchange rates in the economy.
With this policy shift, market participants hope for a more transparent and flexible forex market, which could contribute to stabilizing the naira and attracting foreign investments. As Nigeria’s economic landscape continues to evolve, the impacts of these reforms will be closely monitored by both domestic and international stakeholders.