The strict controls, intended to stem the flow of foreign exchange out of the country in light of depleting foreign reserves, resulted damaging effects across board. Investors and international companies could not repatriate funds and, in some cases, shut down operations. Local businesses were forced to purchase foreign exchange on the parallel market at more expensive rates and regular Nigerians felt the brunt as food prices shot up amid a fuel shortage crisis which was also a direct result of the strict controls. Travelers were also hamstrung abroad with banks placing tight limits on debit cards. These effects explained why the news of the currency float was received with a sense of relief by investors.
But in contrast, Nigeria’s president Buhari has expressed a displeasure with the new currency policy. At a meeting with business leaders on Monday (June 27), Buhari described the devaluation of the naira as a result of the currency float as “ruthless” saying he remains unconvinced that it was the right move.
“I’m not an economist neither a businessman, I fail to appreciate the economic explanation,” Buhari said. “How much benefits have we derived from naira devaluation in the past?”
Buhari’s comments fit with his publicly stated stance that a devaluation will amount to “killing the naira”. But such comments have also resulted in questions about the independence of Nigeria’s Central Bank and whether the apex bank’s agenda was dictated by economics or politics. However, the president’s obvious disagreement with the policy suggests the apex bank remains in control of monetary and currency policy.
Buhari’s displeasure likely stems from the naira’s sharp fall against the dollar following the float and the impact on ordinary Nigerians. But while the naira’s value was previously pegged lower than it now trades, the strict controls limited access to foreign exchange. Increased access to foreign exchange, seen as critical to boosting investor confidence, will immediately ease business concerns. Long-term, the Central Bank is hoping that by letting the value of the naira be determined by market forces, it can plug the gap between the official and parallel market values of the naira.