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Forex Restrictions Lifted by Nigerian Central Bank for 43 Items, with Exchange Rates Now Influenced by Market Forces.

The Nigerian central bank announced its choice to revoke the foreign exchange constraints that had previously been placed on the importation of 43 items on October 12. The central bank pointed out that these limitations, initially implemented in 2015, could have played a role in the depreciation of the naira in the parallel foreign exchange market.

Consolidating the Different Exchange Rates for the Nigerian Naira

On October 12, the Central Bank of Nigeria (CBN) revealed that it had removed foreign exchange restrictions that were previously imposed on the importation of 43 items. The central bank stated that this move aligns with its broader aim of consolidating the various exchange rates for the local currency and also mitigating inflation.

In a statement explaining the reasons for the removal of the restrictions, which were initially introduced on June 23, 2015, the CBN stated that these measures were compelling importers to seek the scarce resources from the parallel market. Prior to the foreign exchange market reforms led by Nigerian President Bola Tinubu, the local currency had been trading at slightly below N500 per dollar for over a year.

In the parallel market, where the U.S. dollar was and continues to be readily accessible, importers were compelled to pay premiums, starting at 20%, in order to obtain U.S. dollars. Some experts in the Nigerian economy contended that the official exchange rate significantly overvalued the local currency at that time. There were even calls for the central bank to devalue the naira-to-dollar exchange rate, but such a move was resisted.

Foreign Exchange Policy during the Tinubu Administration at the CBN

However, right after assuming office as Nigeria’s new leader, Tinubu purportedly instructed the CBN to abandon the fixed exchange rate system. Regarding the rationale for the CBN’s decision to lift the restrictions, the statement stated:

“The restrictions compelled importers to resort to the parallel market, which added to the excessive demand for foreign exchange. As a result, the parallel-market exchange rate weakened, resulting in an increase in prices.”

Under the leadership of Olayemi Michael Cardoso, the central bank has noted that the widening disparity between the official and parallel market exchange rates could imply that the rate “has not been establishing an equilibrium price.” Therefore, by eliminating the restrictions, the CBN has proposed that this would not only promote “orderliness and professional behavior” but also allow market forces to dictate the exchange rate.

The CBN also emphasized that the elimination of these restrictions would have a positive impact on local producers by reducing the cost of imported inputs. This, in turn, is expected to result in more affordable retail products for consumers. The central bank also anticipates that this change in policy will lead to the reopening of previously closed factories.

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