CBN adopts NAFEX rate as Nigeria’s official exchange rate

In a move to streamline and unify the exchange rate system in Nigeria, the Central Bank of Nigeria (CBN) recently announced that it will be adopting the NAFEX rate as the official exchange rate. The decision comes as part of the CBN's managed float regime, which benchmarks all foreign exchange transactions against the NAFEX rate, introduced in 2017 to reflect activities in the Investors and Exporters FX window. Ayodeji Ebo, Head of Retail Investment at Chapel Hill Denham, shed light on the implications of this decision and the broader economic landscape during an interview with CNBC Africa. Ebo explained that the move is not tantamount to a devaluation of the Naira but rather a technical adjustment aimed at unifying exchange rates and providing clarity in the foreign exchange market. By aligning major sales transactions with the NAFEX rate, investors and market participants can expect a more consistent and transparent pricing mechanism for dollar acquisition. This shift towards the NAFEX rate signifies a step towards unifying communication on exchange rates in Nigeria. During the Monetary Policy Committee (MPC) meeting, the CBN underscored the challenges of inflation and sluggish economic growth. While the MPC opted to maintain interest rates, Ebo noted that the CBN's numerous interventions have had some positive impact on the economy, albeit insufficient to drive robust growth. He emphasized the need for complementary fiscal policies to attract private sector investments and foster economic expansion. Additionally, Ebo praised the CBN's proposed injection of an additional hundred billion facility into the economy, acknowledging the initiative while urging for a more substantial and strategic approach in line with the nation's economic size. He stressed the importance of addressing security concerns and channeling borrowing towards infrastructure development to stimulate economic activity and attract capital investment. Amid discussions of a potential digital currency for Nigeria, Ebo highlighted the distinction between digital currency and crypto currency. He noted that while the CBN aims to introduce a regulated digital currency to streamline electronic transactions and reduce transaction costs, this should not be conflated with the unregulated and cryptographically-dependent nature of cryptocurrencies. Ebo expressed support for central banks embracing digital currencies as a means to modernize and enhance the efficiency of financial transactions. The potential adoption of a digital currency by the CBN could offer a viable alternative to cash transactions and contribute to a more seamless payment ecosystem in Nigeria.