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Nigeria welcomes $1.4 billion inflows in June following FX restriction lift
Nigeria experienced an influx of $1.41 billion into its currency market this past June, as revealed by the central bank. This significant surge can be attributed to the nation’s decision to do away with its multiple exchange rate system. This system had previously maintained the naira’s value at an artificially elevated level.
In a bold economic reform led by President Bola Tinubu, the Nigerian central bank removed the foreign exchange restrictions in June, resulting in the naira weakening by over one-third. This move was received positively by investors, evident from the increased inflows.
To put this into context, the bank had recorded inflows amounting to $1.14 billion in May, before the restrictions were abolished. It’s worth noting that the majority of the June inflows originated from companies and exporters.
Going back in history, Nigeria’s currency market was dynamic, handling trades worth hundreds of millions of dollars daily. However, this vibrant trade scene suffered a setback when the aforementioned restrictions were instated in 2017.
The nation’s currency market took another hit when foreign investors withdrew from local assets, responding to the dwindling oil prices of the past. A repercussion of this shift was the departure of foreign investors, who are yet to make a full return. Additionally, the central bank is still grappling with the unsatisfied demand for dollars. This includes the unmet needs of foreign investors eager to move their funds out of the country and airlines wishing to transfer earnings from ticket sales overseas.
These dollar shortages have led several businesses and individuals to resort to the unofficial black market. Here, the currency’s value is significantly weaker, increasing the disparity with the official rate. For instance, on a recent Thursday, the naira plummeted to a historic low of 920 per dollar on the black market. This is in stark contrast to its standing of 771 naira on the official market.
This development underscores Nigeria’s ongoing economic challenges and the measures being taken to navigate them. The world will be keenly observing how these shifts impact Africa’s largest economy in the long run.
