By floating the currency before the social buffers from the subsidy removal were fully operational, the administration overlapped two massive inflationary events, testing the absolute limits of the nation’s democratic resilience.

IF the removal of the petrol subsidy was the fiscal shock of 2023, the unification of the exchange rate windows was the monetary earthquake. For decades, Nigeria’s foreign exchange (FX) market was defined not by market forces, but by administrative allocation. A privileged few accessed dollars at the official rate (N460/$), while the rest of the economy sourced them at the parallel rate (N750/$).

his dual-rate regime created an economy incentivized to “round-trip” rather than produce. The most profitable business model in Nigeria was not manufacturing or technology; it was arbitrage, buying low from the Central Bank and selling high on the streets of Lagos.

The second pillar of the “Tinubunomics” framework, Exchange Rate Unification, sought to dismantle this distortion. This article interrogates the mechanics of this unification: Why was the “float” inevitable? Why did the Naira depreciate so aggressively? And critically, why has “price discovery” not yet translated into “price stability”?

The pre-condition: A crime scene of Arbitrage
To understand the necessity of the reform, one must analyse the dysfunction it replaced. By early 2023, the gap between the official and parallel exchange rates had widened to over 60 per cent. In economic terms, this spread functioned as a tax on exporters (who were forced to surrender earnings at an artificially low rate) and a subsidy for importers of eligible items.

This structure bled the foreign reserves. The Central Bank of Nigeria (CBN) was burning billions of dollars monthly to defend a rate that had no basis in reality. Foreign Portfolio Investors (FPIs) exited the market, citing the inability to repatriate funds and the lack of a credible pricing mechanism. The “official” rate had become a fiction; the reform acknowledged the reality.

The mechanics of the float: Willing buyer, willing seller
On June 14, 2023, the CBN announced the operational changes to the foreign exchange market. The segmentation of windows was abolished, collapsing all segments into the Investors and Exporters (I&E) window. The rate would no longer be dictated by the Governor’s fiat but determined by market forces, the “Willing Buyer, Willing Seller” model. The immediate economic consequence was a massive depreciation of the official Naira rate.

Critics argue this devaluation was a policy failure. However, our inquiry suggests it was a “Price Discovery” event. The Naira did not lose value because of the announcement; the announcement revealed the value the Naira had already lost. The reform transferred the pricing power from the regulator to the market.

The J-curve of currency reform
Much like the removal of subsidies, the currency float produced a J-Curve effect. The depreciation triggered immediate cost-push inflation. In an import-dependent economy, the exchange rate is the “numeraire”, the anchor for all pricing. Everything from pharmaceuticals to wheat is indexed to the dollar.

The “pass-through” from the exchange rate to domestic prices was swift. However, unlike the subsidy removal, the “J-Curve” recovery in the currency market has been slower to materialise. Volatility persisted long after the unification.
Why?

Critique: The liquidity constraint
The primary critique of this pillar lies in the confusion between “Price Discovery” and “Liquidity.”

Unifying the rates solved the pricing problem; everyone now knows the true cost of a dollar. It did not, however, solve the supply problem. A market is only as efficient as its liquidity. The CBN floated the currency while facing a significant backlog of unmet FX demand (estimated at over $7 billion in forwards).

Floating a currency without a robust reserve buffer is akin to opening a dam without enough water to turn the turbines. The persistent volatility in late 2023 and early 2024 was driven by supply scarcity. The reform sequencing was theoretically sound (unify the rates), but operationally constrained (lack of immediate liquidity injection).

Without a massive influx of dollars, either from oil receipts, Foreign Direct Investment (FDI), or external borrowing, the “Willing Buyer, Willing Seller” model becomes a “Desperate Buyer, Reluctant Seller” model. This scarcity drives rates higher, regardless of fair value.

The mechanism of convergence
Despite the volatility, the reform achieved its primary structural objective: the compression of the spread.

By early 2024, the gap between the official and parallel market rates had narrowed significantly. In the logic of “Tinubunomics,” this is a success. Why? Because it kills arbitrage incentives. When the spread is 5 per cent, it is no longer profitable to bribe officials for FX allocation. The profit motive shifts back to productive activity.

The elimination of the spread is the “Institutional Anchor” that prevents the re-emergence of the rent-seeking cabals. It forces Nigerian banks and corporates to compete on efficiency, not access.

Lessons for future reform episodes
Two critical lessons emerge from the monetary reset:
Price discovery/price stability: A unified exchange rate can still be a volatile one. Stability comes from a diversified export base, not from fixing the rate. The public must be educated that a “stable” rate in an import-dependent economy is often a “subsidised” rate.

Sequence supply with reform: Future attempts at liberalisation should prioritise securing a liquidity line (e.g., a massive reserve boost or swap line) before announcing the float. The lag between the announcement and the backlog clearing damaged market confidence.

Strategic implications for business
For the business community, the implications of the monetary reset are permanent:

End of “allocation” economics: Business models built on securing cheap official FX are obsolete. Profitability must now come from value addition, not currency gaming.

The export imperative: The depreciation acts as a massive incentive for non-oil exports. Nigerian goods are now cheaper globally. The smart capital is moving into agriculture, solid minerals, and services export sectors that earn dollars to hedge against Naira volatility.

Conclusion: A journey, not a destination
The unification of the exchange rate was not the end of the reform; it was the clearing of the debris. It removed the distortion that made honest business impossible. However, a unified rate is merely a scoreboard. The game is played on the field of productivity.

“Tinubunomics” has successfully reset the scoreboard. The challenge now is to improve the players. Until Nigeria produces more than it consumes, and exports more than it imports, the “true” value of the Naira will remain under pressure. The reform revealed the truth; it is now up to fiscal and industrial policy to change that truth.
Next Week: We examine the third pillar, The Sovereignty Play. We analyse the “Naira-for-Crude” policy and investigate whether “functional de-dollarisation” is a viable strategy for stabilising the currency.

Profs. Aliu, Familoni and Sarumi are faculty members and researchers at the ICLED Business School in Lekki, Lagos, specialising in entrepreneurship, macroeconomic policy, political economy, and strategic leadership. This 11-part series is adapted from their latest peer-reviewed research paper, “Reform Sequencing under Democratic Stress: Fiscal Correction, Currency Liberalisation, and Institutional Anchoring in a Resource-Dependent Economy.”