NIGERIA: Nigeria's Central Bank eases forex controls, prepares for re-denomination of local currency

Nigeria's central bank will eliminate all restrictions on capital account transfers and make its naira fully convertible by January 1, 2009. Nigeria is sub-Saharan Africa's second largest economy. Nigeria's central bank has announced a change of policy on the local currency, the naira. The bank will gradually phase out its foreign exchange auctions in favour of interbank dealing. Fiscal revenues will be distributed to states in dollars to deepen the country's foreign exchange market. One US dollar traded for about 126 naira upon news of the policy shift. Nigeria, the second largest economy in sub-Saharan Africa, deregulated its foreign exchange market in February 2006. This was meant to allow retail banks increased access to hard currency, but restrictions have remained on many types of dollar transactions. Economists said the risk posed by the central bank's move is minimal given the stability of the naira against the US dollar. The naira has remained stable this year against the US dollar despite turbulence and kidnappings in the oil producing Niger Delta cutting crude production by 25 per cent. But analysts also warned that measures should be put in place to check a run on the currency or a speculative attack. "There is no strong threat of high inflation coming from abroad," said Ayodele Teriba, an economic analyst in Lagos. "There is still going to be a global liquidity glut and low interest rates, so in such an environment I think you know, in such an environment you can experiment. Nothing seriously should go wrong if you experimented with floating the currency at a time of global liquidity glut." The Central Bank said it had 42.74 billion US dollars in external reserves at the end of June. Analysts said that it was likely the accumulation of foreign reserves due to the high oil prices that have boosted the value of the Nigerian crude exports, had given the bank confidence to float the naira. Africa's most populous country will also re-denominate the naira from August 1 next year, removing two zeros, so that 100 old naira will become one new naira. "If you have not had hyper inflation it's uncalled for. Nigeria hasn't had hyper-inflation so, re-decimalisation is uncalled for. Ghana needed to do it because they had inflation," added Teriba. An International Monetary Fund (IMF) team is due to visit Nigeria later this month. The team will review the progress of Nigeria's home-grown programme of economic reform under the new leadership of President Umaru Yar'Adua.

ITN Source | August 17, 2007

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