Following the lead of other oil-producing countries like Venezuela and Angola, Nigeria has removed the peg of its currency to the US dollar. This is the first time the west African country has floated its currency, but the country decided that the move was necessary in response to a growing shortage of foreign exchange created by slumping oil prices.
In a televised statement last week, Central Bank Governor Godwin Emefiele said that the currency market would now be "purely market driven" starting on June 20 in what the bank is calling a "managed float."
"We now believe that the time is right" to reintroduce the "flexible interbank exchange rate market," he said.
The naira was pegged to between 197 and 199 naira for one US dollar for the past 15 months. In early-morning trading, its value fell to 270 for one US dollar. Some experts think that it could lose even more of its value.
With oil prices continuing to trade at the lowest prices seen in a generation, Nigeria has been struggling with spiraling inflation and slowing growth. The country is also struggling with the continuing Boko Haram insurgency.
President Muhammadu Buhari returned to Nigeria on Sunday after a two-week trip abroad for medical treatment of an ear infection. Prior to his departure, Buhari expressed concern that the fall in the value of the naira would hurt poor people in the country.
"This is good news for the majority of Nigerians," said Ayo Teriba, CEO of Economic Associates consultancy, because "market devaluation has destroyed domestic activities, with prices of local goods skyrocketing."
Some organizations, including the Manufacturers Association of Nigeria and the Lagos Chamber of Commerce and Industry support the move saying that it will free up the foreign exchange market and benefit investment in the country.
“The move is quite commendable,” Mudal Yusuf, Director-General, Lagos Chamber of Commerce and Industry told the Vanguard newspaper in Nigeria. “There will be considerable moderation in exchange rate as supply of foreign exchange improves.”
Good for Nigerians?
Questions have risen as to how the decision to float the currency will afffect the everyday Nigerian. Atiku Samuel, an economic researcher with Budgit a group that monitors government spending, said that allowing the currency to find its true value is good for the economy. He also thinks that curbing government control of the currency will ease the current hardship.
"When the supply shock is actually lifted and dollars begin to flow in back into the economy, the effects become positive," he said.
Baerbel Freyer from the Delegation of Industry and Commerce in Nigeria thinks that the floating of the naira will stimulate investment in the country, including from German small and medium-sized enterprises.
"This step boosts investor confidence because we have a lot of German businesses who are ready to come to Nigeria," she said. "Many have business projects in their pockets and they would like to see them move forward."