In an announcement that seems to confirm the earlier assumptions of some analysts and stakeholders, the Federal Government, through written communication to the International Monetary Fund (IMF), disclosed its plans to seek a more flexible and unified naira in response to the external shock brought by the coronavirus pandemic.
In the letter of intent, which was seen by Nairametrics, requesting funding from IMF, the Nigerian Government said that more currency flexibility would help to protect dwindling external reserves and avert economic distortions, leaving them to only intervene when there are huge fluctuations.
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In the letter, which was dated April 21, and jointly signed by the CBN Governor, Godwin Emefiele and Finance Minister, Zainab Ahmed, the Federal Government said:
“We are committed to maintaining this more unified and flexible exchange rate regime, which will operate in a market-determined manner and be allowed to respond to shocks, with Central Bank of Nigeria only intervening to smooth large FX fluctuations.”
Two days ago, the IMF approved Nigeria’s request for a $3.4 billion emergency funding to mitigate the impact of the outbreak of the coronavirus pandemic and plug revenue gaps as a result of a crash in oil prices.
This letter falls in line with the IMF policy of always encouraging a floating and single exchange rate regime in the management of the country’s foreign exchange market because it eliminates distortions in the economy.
This move will help encourage more foreign capital inflow into the country as it will engender more foreign investor confidence.