Nigeria says it will allow the embattled naira to trade freely in a move to control the currency crisis in Africa’s most populous nation.
The new system is to come into effect on 20 June and is expected to lead to a significant devaluation of the naira.
Being a major oil exporter, Africa’s biggest economy has been severely hit by the fall in commodity prices.
The fixed currency rate had created a vast black market for US dollars and squeezed the country’s economy.
The Central Bank of Nigeria had long been expected to to allow the naira to be more flexible and trade at a market-driven rate.
The naira is currently fixed at 197 to the US dollar while the black market rate has soared to 370 over the past months.
The currency fix was introduced in February of 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. He wanted 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 in order 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.
But 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.
In May, Nigeria’s central bank governor had warned a recession was “imminent.”
A lower value of the naira will make domestic products cheaper and competing imports more expensive, which is hoped to help the struggling economy.
Companies have suffered from the crisis, being forced onto the black market to pay for imports of goods and equipment.
The expected devaluation is thought to also bring back investor confidence as foreign companies had found it increasingly difficult to do business in Nigeria.
A number of foreign airlines recently stopped their flights to Nigeria after they were unable to repatriate up to $600m (£417m) in ticket sales, according to the International Air Transport Association (IATA).