Implications Of A Flexible Exchange Rate Regime

The Central Bank of Nigeria (CBN) had, during its last Monetary Policy Committee (MPC) meeting held on the 23rd and 24th of May 2016, announced an imminent departure from the current fixed exchange rate regime. Explaining the shift, the CBN confirmed that the move has become necessary in order to reduce the pressure, and introduce greater transparency in the foreign exchange market. In light of this policy shift, it has become imperative to analyse the flexible model to appreciate the implications for businesses as well as ordinary Nigerians.

In simple terms, a flexible forex market is one that allows the exchange rate to float freely and to find its equilibrium without any form of intervention from government. Indeed, globally, governments rarely operate a clearly defined exchange rate regime. What you would have is a situation where the market operates a model that hovers between the polar opposites (fixed or floating) depending on the level of government