Still on the theme of defending exchange rates and Africa, the Central Bank of Nigeria (CBN) is desperate to defend its currency (the naira) as it has been hit hard by the dramatic fall in the price oil, Nigeria’s main export. Over the last year the naira has fallen by approximately 20% against the US dollar. Instead of letting the currency depreciate the CBN are trying to defend it by blocking imports and therefore decreasing the supply of naira on the foreign exchange market. Foreign reserves have fallen by about 20% and can only cover about 6 months of imports. The CBN is not issuing any foreign reserves for a range of imports that include: Indian incense; wire rods; rice; tined fish and believe it or not toothpicks. They are also not issuing foreign currency for the importation of private jets – I wonder who would import them?
It is usual for central bankers to protect their currencies when they are concerned about inflation or they allow them to depreciate to make exports prices more competitive and imports more expensive. However, it seems that Nigeria wants an uncompetitive exchange rate and higher inflation.
Source: The Economist