FG Announces Automation of Forex Transactions as Naira Slumps to 1,220/Dollar

In a significant move to combat the devaluation of the Naira and curb currency speculation, the Federal Government of Nigeria has unveiled plans to automate all foreign exchange transactions within the country. The announcement was made by the Minister of Finance and Coordinating Minister for the Economy, Wale Edun, during the 29th Nigeria Economic Summit held in Abuja.

The automation initiative aims to closely monitor all activities within the foreign exchange market, from official transactions to those taking place in the informal money-changing sector, which has been a hotspot for substantial arbitrage. Offenders engaging in unlawful foreign exchange dealings will be identified and subjected to legal consequences.

As the Naira continues to weaken, it was reported that it slumped to an alarming rate of N1,220 against the US Dollar on the black market. This decline has been a cause for concern, as the Naira had crossed the N1,000 threshold just three weeks ago.

The situation further deteriorated as the Naira continued its free fall, losing approximately 25% of its value over the past three weeks. This alarming depreciation prompted the government to take swift actions to stabilize the forex market.

During the summit, Minister Wale Edun disclosed that President Bola Tinubu had signed two executive orders. One of these orders allows for forbearance, encouraging the inflow of cash into the economy to enhance legal money supply. The other order permits the domestic issuance of foreign currency to incentivize the provision of foreign exchange from various sources.

The Minister emphasized the need to simplify and reform the foreign exchange market, ensuring that all legitimate transactions are conducted through formal channels. Transactions outside the formal market will be considered illegal and subject to legal consequences.

President Tinubu, speaking at the summit, pledged to resolve the backlog of foreign exchange contracts, which has affected investor confidence. The Central Bank of Nigeria (CBN) had issued forward contracts to businesses, promising future delivery of dollars at agreed-upon prices. However, these contracts had not been settled since February 2023, leading to a substantial backlog of approximately $3 billion.

CBN Governor Yemi Cardoso committed to focusing on price stability and creating a forex market that is transparent, predictable, and functional for all participants. A comprehensive framework is expected to be introduced to establish clear rules for the forex market.

In addition, the government aims to stimulate economic growth through various reforms, including addressing issues related to forex liquidity, tax diversity, and the high cost of imports.

President Tinubu also assured that a student loan program would commence in January 2024, designed to put an end to strikes in the country’s tertiary institutions and provide students with interest-free loans.

In response to the Naira’s depreciation and its impact on manufacturers, Prof. Adebayo Adams, a university don and chairman of the National Association of Small and Medium Enterprises (NASME) in Lagos, criticized the government’s forex policy. He called for measures to subsidize manufacturers while allowing the Naira to float and for payments to foreign suppliers to be made in their respective currencies, such as the Yuan.

Bureau De Change (BDC) operators in Lagos expressed concerns over the Naira’s rapid depreciation, citing a lack of sufficient CBN-supplied dollars in the parallel market. They reported selling the US Dollar for N1,220, and warned of further potential Naira devaluation if demand continues to outstrip supply.