Nigeria has sharply devalued its currency for the second time in eight months, as the west African country bids to clear up its messy system of exchange rates and attract investment to its flailing economy.
The naira has tumbled this week after the methodology used to calculate the official exchange rate was changed, taking the currency closer to the black market rate.
The move is widely seen as part of market-friendly reforms being introduced by Bola Tinubu, who became president last May and who shortly afterwards jettisoned the years-long peg instituted by the former central bank chief that had kept the currency artificially high.
However, the country still kept an official rate that was well above the freely-traded rate, which made it more expensive for multinational companies wanting to invest in Nigeria.
Charlie Robertson, head of macro strategy at asset management firm FIM Partners, said the new methodology could help Nigeria attract more investment as it essentially abolishes the multiple exchange rates that frustrated investors.
“It could take months but there could be more dollars swirling around in Nigeria now that the currency is officially very cheap,” Robertson said
FMDQ Group, which calculates the country’s official exchange rate, announced on Friday that it was revising its methodology to “address recent fluctuations and challenges encountered” in Nigeria’s highly volatile foreign exchange market, where the official exchange rate often trailed parallel market values. The publication of exchange rates was suspended that day.
The revised exchange rate system, which FMDQ began publishing this week, will ensure that “rates accurately reflect market conditions while upholding price formation and transparency”, the firm said.
The currency fell by nearly 40 per cent to 1482.57 to the dollar on the official market on Tuesday and slipped as low as 1,531 on Wednesday, according to FMDQ. That took the naira past N1,475 to the dollar it is trading at on the black market, according to one trader.
Nigeria’s central bank on Monday took aim at authorised dealers and their customers, which it said were reporting “inaccurate and misleading information” on their transaction rates, leading to distortions in the official market.
