What CBN's Decision to "Float the Naira" Really Means

So first of all, here's the gist of what's happening right now with the naira in the country.

You know that normally, if you want to get dollars, the bank rate for the longest time has been set at $1/N462. That is, you will spend N462 to get $1 if you go through the bank. On the other hand, if you wanted to get dollars from outside (i.e. the parallel market), then you can be looking to spend a lot more. In fact, prices for dollars in the parallel market rose to as much as $1/N755 this year.

At this point you might be asking: why won't everybody just go and get dollars from the bank then instead of from the parallel markets? Well, it's because to get dollars from bank...na war! 😂 The CBN created a list of 43 items which importers could not access dollars from at this bank rate. The CBN also limited dollar access for students travelling abroad. In fact, to get dollars from the bank, is not easy but if you were able to get, you would get it at that official bank rate of $1/N462.

But all that has changed now! The CBN has now decided to FLOAT THE NAIRA. And what does that mean you ask? Well, let me tell you!

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What Does Floating The Naira Mean?

So you know how I was telling you about that official bank rate of getting $1 for N462 instead of N700+? Well, that is no more.

Floating the naira means that now, the CBN has essentially told banks to sell their dollars at whatever rate they want to sell it. That N462 price is now out the window. It is now up to the seller of the dollar to quote however much they want to sell their dollars for. So as you can imagine, the banks are about to go CRAZY with this!

In fact, the Investors & Exporters (I&E) window is now quoting a range of between N750 and N755 to $1, according to some customers who cited emails received from their banks.

So in a nutshell, that is what the CBN floating the naira means!

So Is This Good...Or Bad?

Well, it depends on who you're asking. If you're asking a parent just trying to send their child abroad some money. That N462,000 that would have gotten them $1,000 to send if done through the bank, would now be only $611 if using a N755/$ rate. That is bad for that parent and child.

But for businesses, especially foreign businesses, it seems to be good news. Jude Dike, a financial expert said:

Basically one of the biggest issues companies have had is access to dollars. As an international investor, if you do business in Nigeria, you have to go through CBN to bring dollars into the country (say you want to bring $20m) to convert at the CBN rate. The reason for this is, if you want to take money out, you will also take it out at CBN rate. But then CBN measures how much money they give to BDCs and if you were trying to use BDC at the black market rate, there are not enough dollars. It is one of the reasons we owe Emirates $800m. Their money is stuck in naira, they cannot take it out in USD.

According to Jude, floating the naira can be a good thing because according to him:

If I choose to sell at N900, another person sells at N800, another at N850, people will flock to N800 first, if that person’s own finishes, then they will go to N850. If N900 people are not doing any business, they can choose to sell at N790, people will rush to them and it keeps going like this. As long as there are a lot of people who have more dollars to sell, the price will come down. So now CBN can choose to sell at N755, and as long as they keep having dollars to sell, people will rush to them. It is like what you see at filling stations. when it started it was N520 or more. Now most places sell at N495.

Hmm. Well, let us see how this all shakes out. What do you think of this new move by the CBN? Let me know your thoughts by leaving a comment either below or on my Jide Okonjo Facebook post.

That's All.

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