FEDERAL GOVERNMENT PLANS FOR NAIRA TO APPRECIATE AGAINST DOLLAR

Nigeria will allow the embattled naira to trade freely in a move to control the currency crisis in the country, this new system will come into effect on 20 June and is expected to lead to a significant devaluation of the naira.

The fixed currency rate had created a vast black market for US dollars and squeezed the country's economy. Nigeria's central bank had long been expected to allow the naira to be more flexible and trade at a market-driven rate.

The naira is fixed at 197 to the US dollar, but the black market rate has soared to 370 in recent months. This currency fix was introduced in February 2015 to stop the naira from falling when lower oil prices sparked trouble for Nigeria's economy.

But a prolonged period of holding a currency at an artificial level often has a disruptive effect as foreign companies become reluctant to import goods when they are paid at distorted levels. For months, Nigeria has been in the grips of a severe foreign currency shortage. As oil prices plummeted, so did the country's foreign currency earnings, meaning there was less cash to pay for imports. Unlike other major petroleum producers, such as Russia,

Nigeria refused to devalue its currency. The country's president wanted Nigerian businesses to make what they could not import and to diversify the economy away from the oil industry, But that policy led to widespread shortages of raw materials, machine parts and supermarket products.

The new exchange rate will be welcomed by businesses that were forced onto the black market to pay for their imports. On occasions they were paying almost double the official rate for dollars.

Foreign investors may also be tempted back as they will get more value for their money. The new exchange rate is likely to push up already high inflation. And that will hurt tens of millions of Nigerians who live in abject poverty