On Wednesday, May 14 2023, Nigeria eased its control of the naira, allowing the local currency to float and giving banks and other FX actors the freedom to decide what rate they want to trade based on market conditions, not based on what the CBN quotes.

What exactly does this mean?

Floating the naira means that the government of Nigeria has allowed the value of the naira to be determined by supply and demand in the foreign exchange market. 

With this move, the fixed for trading forex within the country and the CBN’s direct intervention in the forex market has been eliminated.

To break it down even further, imagine you’re a business owner and you put your product and service out there without a fixed price, allowing people to bid and put their own prices on it. With this, the prices fluctuate, going high and low based on how much buyers value the product. In the same vein, the value of the naira will now fluctuate as buyers and sellers in the official FX market quote rates they find comfortable.

Following this move, the market decided that the dollar should trade anywhere between N664 and N775 — not the N471 previously quoted by the CBN and the I&E window.

What does it mean for you?

Depending on who you are and what you do, this can either come with positives or negatives. In general, it will have a direct or indirect effects on everyone living in Nigeria.

• Businesses

For businesses that do export, the move will favour them and positively impact on their profits. However, for those that deal in importation, it’ll pose a challenge because the fall in value of the naira will naturally lead to an increase in the cost for procurement of raw materials they use for their products.

• Students

The increasing number of Nigerians relocating to school abroad tops the list of those who will be worst hit by the new policy. Paying fees to a foreign school while earning in naira means you’ll be spending more than you could have before the implementation of the policy. For example, if they needed ₦1m to pay a $2,000 fees, they’ll now need ₦1.5m, an extra ₦500,000. 

The price things like IELTS examination and visas is also expected to go up, making the cost of relocation even more expensive for everyone with a japa dream.

• Ordinary Nigerians

The floating of the Nigeria will lead to an increase in the price of imports, and Nigeria’s high dependence on imports in turn means prices of goods will soar. This is what the average Nigerian will have to deal for as long as the policy is in place.

Conclusion 

While this policy comes the positives and the negatives, the poor and rich alike are receiving a hard hit directly or indirectly. Experts say the policy will boost the country’s economy, but only time will tell how it’ll pan out eventually and if the currency floating will be sustained for a long time.

Next steps for you can be to increase your earning and investment to cushion the effect of spike in cost of goods and services.

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