On June 20, 2016, the CBN decided to remove the N197-199 to a dollar peg it had put on the exchange rate for about a year. In effect, the CBN decided to float the Naira, to leave the determination of the exchange rate to market forces.
This move, it was hoped, would instill confidence in foreign investors in the currency and increase foreign investors in the country.
So far, that move has failed woefully. The Nigerian Stock Exchange (NSE) website reports that transactions for the first half of the year decreased by 44 percent to 624 .4 billion naira from a year earlier. Oscar Onyema, Chief Executive Officer of NSE confirmed this saying ‘We have seen total reduction in market activity, both domestic and foreign, the foreign even more…we saw significant activity in the market and then it tapered off’.
Why though, has this CBN gotten this move wrong? According to Onyema, investors still lack confidence in the allocation of foreign exchange as well as credibility of the floating. The constant fear of CBN intervention to indirectly peg the Naira is scaring investors. ‘[They] want to see that there is credibility in this floating rate regime. They also want to see clarity in the allocation of foreign exchange.’
Parts of this article originally appeared in Bloomberg News.