POSITIVE CHANGES OCCUR AFTER NIGERIA'S FREE-FLOATING FOREX MARKET TO HARMONIZE EXCHANGE RATES.

The nation's goal of unifying its foreign exchange has won popularity in the financial world, making it easier for people and businesses to access financial services. According to experts, Nigeria's economy may revive as a result of these measures toward a cooperative and open foreign exchange market.

The Central Bank of Nigeria (CBN) has taken the initiative to permit the deposit money banks (DMBs) and foreign exchange market dealers to freely purchase and sell foreign currency at market-determined rates in response to President Bola Tinubu's decision to unify exchange rates in Nigeria. With this change, the former multiple-forex regime is replaced with a “free-floating” system.

The country's financial environment has improved as a result of the foreign exchange unification policy. The DMBs' initiatives, which seek to offer seamless and convenient foreign exchange services, have received enthusiastic customer support.

Customers can now save time and hassle by converting FX to naira through online banking platforms instead of having to withdraw cash or use the black market for currency conversion. This development indicates both the government's dedication to establishing a transparent and effective FX market and the growing confidence in the single exchange rate system.

INNOVATIVE APPROACHES FOR THE FX MARKET

The CBN implemented measures to enable more seamless transactions after realizing the value of remittances from Nigeria's diaspora to the country's economy. The naira is now a payout option alongside FX and the eNaira for the receiving of diaspora remittances, according to a recent circular released by the CBN.

Nigerian banks are offering creative ways to better serve their consumers in response to the changing financial landscape. The FX Cash Backed Loan, which allows holders of domiciliary accounts to acquire naira loans of up to 85% of their available FX balance, is one noteworthy product. Individuals can use this financial instrument to cover their immediate financial demands without having to remove or use their foreign exchange assets. Customers can easily acquire funds to support their personal and professional goals by using their FX holdings as security.

One of the banks has lifted the ban on foreign transactions using naira cards, giving people more freedom to carry out cross-border transactions. With the removal of the former restrictions that complicated international financial transactions, this improvement enables cardholders to make payments and purchases internationally with ease. An important step toward bringing Nigeria's financial system into compliance with international norms and facilitating global trade and commerce is the restoration of international transaction capabilities.

Nigeria's dollar-denominated sovereign bonds have risen significantly, mirroring the market's upbeat mood. The price of the nation's eurobonds has increased as a result of the FX regulations announcement, with certain issues reaching their highest values in months. The maturity of the issue in 2033 increased by 2.4 cents to 78.625 cents, the highest price in more than five months.

It is important to note that Nigeria has had acute dollar shortages, which have prompted many people to go for foreign currency on the black market. By encouraging openness, reducing reliance on the black market, and bringing the value of the naira into line with its official exchange rate, the foreign exchange unification policy's implementation seeks to alleviate these shortages. These initiatives will help create a foreign exchange market that is more efficient and stable, giving people and businesses better security and access to FX.

LONG-TERM GAINS VS. SHORT-TERM PRESSURE

An important step in Nigeria's economic development has been made with the government's decision to standardize currency rates and conduct thorough FX reforms. The export sector has to be strengthened, FX profits need to be increased, and strong regulatory measures need to be in place to prevent market distortions, according to Nigerian economists.

The chief executive of Volition Cap, Subomi Plumptre, believes that a competitive market will be to everyone's advantage. According to Plumptre, the ability for customers to do so on online banking systems will increase competition among International Money Transfer Operators (IMTOs). This might encourage innovation, resulting in reduced transaction costs and improved rates for the general population. The FX Cash Backed Loan is an illustration of how loosening foreign exchange laws can spur innovation among financial service providers owing to competitive forces. It provides naira loans to foreign currency holders.

“While the naira has depreciated substantially since the FX unification policy's implementation, on the long run, reduced FX intervention could yield positive outcomes,” the author contends.

According to Plumptre, a single exchange rate set by the market would increase transparency, remove opportunities for rent-seeking and arbitrage, and eventually promote higher investor confidence. These advantages might subsequently spur the inflow of dollars, strengthening the naira's currency rate. The continued naira depreciation is a result of the short-term price discovery process, which is also fueled by the artificially low official naira exchange rate and made worse by the difficult global economic circumstances that underlie dollar shortages.

FX ROUND-TRIPPING AND THE MARKET EFFECTS

Iheakanwah The latest FX strategy is supported by Felix Arinzeh, a financial specialist and doctor of business administration, who recognizes “the need to defend the naira against excessive foreign exchange fluctuations.” Arinzeh offers actions to make the FX rate control even more effective and to deter round-tripping. One of the main drivers of the FX rate's continuous rise, particularly in the black/parallel market, is FX round-tripping. FX round-tripping is when clients transfer foreign currency they have gotten from the CBN at an official rate to the illegal market in order to make more money.