The Central Bank of Nigeria (CBN) on Wednesday, June 14, issued a directive to banks to remove the cap on the Investors’ and Exporters’ (I & E) window thus allowing for the free float of the naira exchange rate. This means that the exchange rate on this window would be determined by the invisible hands, the forces of demand and supply, going forward. Foreign currency buyers and sellers can now trade at rates they feel comfortable with based on market conditions and not what the CBN forces them to sell.
The I&E foreign exchange (FX) window is the country’s official exchange rate trading platform. It is a segment for investors, exporters, and end-users, which allows for FX trades to be made at exchange rates determined based on prevailing market realities.
How does this Benefit the Economy?
It would help to rebuild the confidence of foreign investors in the Nigerian Economy. As a result, fosters the inflow of Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI).
Floating the exchange rate on I&E window would help to reduce the spread between the official rate and the parallel market rate.
It is a starting point toward a unified exchange rate regime. It would also discourage importation, as importation would now become more expensive since importers would now need more naira to exchange for a dollar.
Impact on Foreign Education
Before now, Nigerian students who wished to access a foreign education had an opportunity of getting foreign exchange at a cheaper rate using the Federal Government subsidized Form A application portal. This portal was designed by the Central Bank of Nigeria to pay for service transactions. It allows customers to make payments for services such as School fees, Technical fees, Dividends, Airline Tickets, Loans repayment, Judgment debt, Personal Home Remittance, PTA, BTA, etc.
Naira floatation would make it more difficult for students who have depended on the government’s low rate for school fees and other fee payments abroad. For example, paying a deposit of 5,000 British Pound Sterling using the I&E exchange rate window would cost a student around N2.3 million before floats, with an exchange of around N465/$. But with the development, a student hoping to study in the UK would have to budget around N3.5 million, with a floating rate of around N700/$.