Nigerian Central Bank Eases 2015 Import Restrictions to Boost Naira’s Value

On October 12, the Central Bank of Nigeria made an important decision. They decided to remove some restrictions that limited the use of foreign money for buying 43 different items. These rules had been in place since 2015 and these restrictions were seen as a factor that was making the naira, the Nigerian currency, weaker when compared to other currencies on unofficial foreign exchange markets. 

#CryptoNews: Nigerian Central Bank Lifts Forex Restrictions on 43 Items — Market Forces to Determine Exchange Rate pic.twitter.com/PlZbleYIvo

— ★StarLight Crypto🐋 (@Starlightcrypt0) October 16, 2023

However, the central bank’s decision is actually part of a bigger plan. They want to bring together the different exchange rates for the naira, which means making them more consistent. This is a way to control inflation, which is when prices for things go up. By loosening restrictions on the import of these 43 items, the central bank aims to simplify the process for businesses and individuals to acquire essential goods from abroad. This shift has the potential to significantly influence Nigeria’s economy and its monetary system.

Lifting 2015 Restrictions to Improve Currency Stability

The Central Bank of Nigeria (CBN) explained why they removed restrictions put in place in 2015. These restrictions were making importers buy hard-to-find resources on the unofficial market. Before President Bola Tinubu’s foreign exchange reforms, the Nigerian currency stayed around N500 per dollar for over a year.

What You Need to Know About CBN’s Lifting of FOREX Restrictions on 43 Items…https://t.co/34NxcGbI7p #43Items pic.twitter.com/bCRMwl5sOU

— Central Bank of Nigeria (@cenbank) October 15, 2023

These restrictions were causing problems by making people use the unofficial market to get what they needed. Hence, the government wants to make things easier and more stable, which is why they got rid of these restrictions. So, this change is part of their plan to improve how the currency works in Nigeria.

Challenges of Fixed Exchange Rates and President Tinubu’s Policy Shift

In the unofficial market, where the U.S. dollar was readily available, importers had to pay an additional fee of about 20% to acquire dollars. Certain experts argued that the official exchange rate artificially inflated the value of the local currency. They recommended devaluing the naira in relation to the dollar, but the central bank was hesitant to take that step.

Consequently, on the unofficial market, individuals had to pay a premium to obtain dollars, and some believed that the official exchange rate did not accurately represent the true value of the local currency.

As soon as President Tinubu took office in Nigeria, he told the Central Bank to stop using a fixed exchange rate system. The Central Bank explained that they were removing the restrictions because these rules were making importers use the unofficial market, causing a high demand for foreign currency.

Hence, this made the unofficial exchange rate weaker, which in turn made prices go up. In simpler terms, the restrictions were forcing people to use the unofficial market, and this increased the demand for foreign currency, which made the unofficial exchange rate less strong and led to higher prices.

Central Bank’s Shift to Unrestricted Exchange Rates for a Stronger Economy

It is also worth mentioning that the Central Bank, now led by Olayemi Michael Cardoso, noticed a big difference between the official and unofficial exchange rates. They thought that the rate might not be quite right. So, by getting rid of the restrictions, the Central Bank believes it will make things more organized and let market forces decide the exchange rate.

They also think this will help local businesses by making the things they need from other countries cheaper. That could mean lower prices for consumers too. The Central Bank hopes this change will even help factories that had to shut down start working again.