Nigeria’s central bank has said it will stop the direct sale of US dollars to non bank forex operators and allow banks to accept dollar deposits.
This is an effort to protect the Naira which has lost about two-thirds of its value since mid-2014 and to conserve depleted foreign reserves.
The move comes days after a visit by the head of the International Monetary Fund, Christine Lagarde, when she told lawmakers that the IMF did not support foreign exchange restrictions.
We've already seen the immediate impact. The exchange rate has gone up because of that money in the Bureau de Change, there is no check against what is happening on the streets, the parallel market.
Following the announcement, the Naira hit a record low of 282 per dollar on the unofficial market. Nigeria’s Central bank has been under pressure to devalue the Naira, which is officially pegged at 197 to the dollar, although on the tolerated black market, exchange rates can be as high as 250 Naira.
“We’ve already seen the immediate impact. The exchange rate has gone up because of that money in the Bureau de Change, there is no check against what is happening on the streets, the parallel market. Now the parallel market becomes the only source of foreign exchange for people who want to transact businesses. The bureau de Change at least gives a smaller margin of what you get from the bank but now on the streets, the Naira is just getting bashed anyhow and there is no more control,” Dele Sobowale an economist based in Lagos said.
The decision to allow commercial banks to accept foreign currency deposits goes against a restriction imposed last year when such deposits were banned to curb currency speculation.
Nigeria is Africa’s biggest economy, the number one oil producer and most populous country. It is currently facing the worst economic crisis in years.
An OPEC member state that depends on oil sales for about 95 percent of its foreign reserves, Nigeria has been hammered by a collapse in global oil prices, which has triggered a slide in the Naira.
The country is now trying to diversify away from oil to sectors like Agriculture to boost earnings.