Today the CBN announced that it would “float” the naira. There has been much celebration among economic enthusiasts on twitter about this new development, but as an individual, what does it mean for you.
Quite simply what this does is that it removes a fixed price for trading foreign currencies. The exchange rate is determined by the forces of demand and supply. Put simply, if dollars flow into the country, the rates will fall. If dollars are scarce, the rates will go up. The CBN will intervene from time to time, but only as a last resort.
What this means is that you can now buy your dollars at the bank anytime you want, you don’t need the black market unless you are paying for something that has been banned. The true value of the naira will be known at any given time and we become architects of the success and failure of our currency. If we want it to improve, then we have to encourage activities that generate forex. If we continue to live on imports, our naira continues to fail.
No ones knows how the markets will react to this on Monday; it could go either way. The market could be flooded with dollars by those panicking to sell or there could be scarcity.
The good thing about the policy is that the exchange rate is now clear for all to see. There is no longer an issue of some people getting dollars at the bank rate and selling at the black market for profit.
Monday is around the corner. Get ready folks, it’s about to get interesting
