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Why Nigeria’s central bank won’t ease grip on its currency

Nigeria is keeping control of its naira currency despite demands for deeper reforms from the International Monetary Fund and World Bank and complaints from businesses.

The multilateral institutions say a free-floating naira would help the economy withstand future shocks. But Nigerian authorities fear inflation stemming from a sharp devaluation could throw millions into poverty.

Last week, central bank governor Godwin Emefiele denied the country was adopting a new foreign exchange management policy, while vice president Yemi Osinbajo said the government would itself use a more flexible rate.

What is happening to the naira, and why? Here are some key facts about Nigeria’s currency and recent monetary policies:

The COVID-19 pandemic and oil price crash hammered Africa’s largest economy, 90% of whose foreign exchange earnings come from oil exports, pushing it into its second recession in four years.

It narrowly exited the recession in the fourth quarter, but the drop in oil revenues led to a balance of payments deficit of US$14B last year and has depleted its foreign reserves.

Also read: Nigeria’s Naira gains in Parallel Market as Dollar supply rises

The government of President Muhammadu Buhari, who took office in 2015, has kept the currency artificially high as a matter of national pride.

During the last oil price crash, in 2016, the Nigerian central bank created a system of multiple exchange rates in order to avoid a large official devaluation. These included a market-determined rate for investors and exporters called the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX).

Source: Further Africa

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