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Why Nigeria Exchange Rate Policy Is Such a Minefield

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Navigating Nigeria’s foreign exchange rate policy is tricky. There are multiple exchange rates; officials issue confusing and contradictory statements; promised reforms don’t materialize; and the central bank and finance ministry don’t always appear to see eye-to-eye on how to manage the naira. Economic fallout from the pandemic, including a deterioration in state finances, has made the need for clarity all the more pressing.

Nigeria is Africa’s largest producer of oil, which accounts for more than 90% of foreign-exchange earnings. Plunging crude prices starting in 2014 caused an economic squeeze. Rather than devalue the naira, the central bank in 2017 opted to implement one rate for government transactions, pegged to the U.S. dollar, and a weaker, market-determined rate for investors and exporters. That weaker rate is known as the Nafex. Other rates were instituted for travelers and small and medium-sized enterprises. The idea was to improve liquidity and encourage dollar inflows. (There’s also a thriving currency black market, which values the naira at about 18% less than the Nafex rate.)