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Why CBN Yields To World Bank, IMF To Devalue Naira

BY LEVI JOHNSON

The Central Bank of Nigeria (CBN) lead by its governor Mr Godwin Emefiele on Friday officially devalued the naira to N380 to a dollar.

The World Bank and International Monetary Fund over three years have been putting pressure on the Central Bank of Nigeria to devalue its local currency but without a success until when it eventually succumbed this week.

World Bank and IMF maintained that with a drop in foreign exchange reserves and decline in Nigeria’s dollar earnings over fall in crude oil prices, Nigeria had no option but to devalue its currency.

Recall that since the coronavirus palaver that brought the economy of the world to a standstill, the crude oil price has dropped to $28 per barrel.

That price is the lowest in three years. Nigeria gets over 95 per cent of its foreign exchange earnings from crude oil sales.

Besides devaluing the naira, the CBN has also adopted a unified exchange rate, and pushed the official rate of the naira to N376 to a dollar for International Money Transfer Operators rate to banks; N377 to a dollar for banks’ dollar sale to CBN and pegged CBN’s dollar sales to banks at N378.

READ ALSO: Why CBN Will Soon Devalue N400 To One Dollar Say, Analysts

This was contained in a statement signed by CBN Director, Trade and Exchange Department, O.S Nnaji, the CBN directed the bureau de change operators to sell to end-users at not more than N380 to a dollar.

The CBN also pegged the volume of sale for each BDC at $20,000.

The regulatory bank has moved the official rate to N360 to the dollar from N307 per dollar previously and now selling dollar to foreign portfolio investors (FPI) at N380 at the Investors’ & Exporters FOREX window from N366 per dollar previously.

The BDC operators are expected to buy dollar from the CBN at N378 per dollar, according to a circular sent to the BDC operators by the apex bank.

With this action, the regulatory bank has effectively unified the foreign exchange rates in the market in line with the recommendations of the World Bank and IMF.

“Please be advised that the applicable exchange rate for the disbursement of proceeds of IMTOs for the period Monday, March 23 to Friday, March 27, is as follows,” the CBN circular signed by the director of Trade and Exchange, O.S Nnaji stated.

There have been speculations in the market in recent times that the CBN may devalue the currency in view of the impact of the Coronavirus and the sharp drop in global oil prices.

The unification of the exchange rate has effectively ended almost three years of multiple exchange rates in the market.

Before now, the country had about five different exchange rates; one for offshore investors at I&E window, the other for the official window, another one for the interbank, while the bureau de change operators rate was also different from the rest.

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