On February 20, the Central Bank of Nigeria (CBN) put in place a new foreign exchange (Forex) policy on personal travel allowances and school fees in a bid to strengthen the naira.
The bank said it took the decision to make foreign currency exchange easier for Nigerians and reduce the stress often caused by currency hoarders and speculators. The decision followed appeals by the Federal Executive Council to CBN to review its foreign exchange policy to boost the nation’s economic activities.
Before the new policy, the naira had been affected negatively by unfriendly global economic forces; somewhat defying fiscal and monetary policy formulations.
With the new policy, however, the naira has been able to gain some strength; forcing dollar to move down from N520 to between N300 and N350 per dollar within a short time.
Financial experts observe that the apex bank has the courage to implement the policy due to relative peace in the Niger Delta region of the country and the rise in the price of oil at the international market. This development notwithstanding, Alhaji Aminu Gwadabe, President, Association of Bureau de Change (BDC) Operators of Nigeria, said the CBN should ensure the sustainability of the policy.
He also expressed doubts on the quantum of foreign currencies in the nation’s reserves that could sustain the policy in the long run.
“I don’t think we have enough buffers to continue with the approach, so the CBN should lift the ban on cash importation for banks.
“The CBN should lift the ban on autonomous sales of foreign currencies by banks only and allow bureau de change operators to do same with a peg of 50,000 dollars per week per bureau de change,’’ Gwadabe suggested.
He emphasised that the BDCs remained the laboratory apparatus of the CBN, adding that the apex bank should not technically edged them out of business by the new policy.
“The BDCs have partnered with the CBN by preventing the dollar to reach N1, 000 per dollar in the parallel market as predicted by some economists.
“It is only the BDCs that the CBN still have as an option to outwit the operators of the parallel market,’’ he said.
Sharing similar sentiments, Mr Harrison Owoh, an economist, said the CBN should sustain the new foreign exchange policy by ensuring uninterrupted foreign inflows into the economy. He advised the apex bank to deploy diaspora remittances to boost liquidity to Deposit Money Banks and the BDCs.
According to him, sustaining the peace efforts by the Federal Government in the Niger Delta region of the country will ensure stability in the sector and enable the country to produce oil optimally for the international market.
“Increase in the price of oil at the international market will translate to more foreign exchange for the CBN to fund dollar sales to genuine seekers.
“Unless the government musters the courage to match its diversification agenda with the expansion of the non-oil sector, the economy may have another setback.
“The gains recorded by the naira were predicated on the availability of foreign exchange and failure to sustain the policy will result in the depreciation of the naira,’’ he warned.
Similarly, Prof. Sherifdeen Tella, an economist at the Olabisi Onabanjo University, Ago-Iwoye, Ogun, said the new policy could only be sustained with a robust foreign currency reserve.
He, nonetheless, said that rather than introduce temporary measures in the foreign exchange market, the CBN should stimulate the local industry by lowering the benchmark of interest rate. He noted that the growth of the local manufacturing industry would promote export of goods and services which would boost the capacity of the country to earn foreign currencies.
But Prof. Anthony Monye-Elmina, the Head of Department of Economics, University of Benin, said most Nigerians were worried about the sustainability of the new foreign exchange policy. He noted that the CBN was intervening in the foreign exchange market by supplying somewhat sufficient dollars to the system, observing that the sustainability of the policy would turn around the economy.
“If the policy is not sustained, the naira will crash further than it was before the implementation of the policy,’’ Monye-Elmina said.
He explained further that permitting bank customers to deposit amount for foreign exchange in their domiciliary accounts by the apex bank would be a method of injecting foreign currency to the economy.
However, Dr Evans Osabouhien, A Senior Economist at Covenant University, Ota, Ogun, said that the CBN’s intervention in the foreign exchange market could be best described as a palliative measure. According to him, the gains already recorded by the new policy will be so short-lived if the government does not go back to the basics of encouraging local production.
In a different opinion, Dr Chijioke Mgbame of the Department of Accountancy, University of Benin, said the foreign exchange market in Nigeria was characterised by dual official rates that were not tenable anywhere in the world.
According to him, therefore, any efforts at sustainability should begin with the elimination of the dual rates prevalent in the market. He urged the CBN to exercise a strict oversight function on the banks to checkmate round-tripping.
“Government should finally eliminate the dual exchange rate since no country in the world operates a dual exchange rate system,’’ Mgbame said.
In his opinion, Mr Femi Ekundayo, a former President of Chartered Institute of Bankers of Nigeria, said the numbers of BDCs were many in the country. He said that BDCs should be able to generate foreign exchange currencies to meet the needs of their customers.
According to him, the CBN and the Nigerian Inter-bank Settlement Systems should develop a template of tracking those who get foreign exchange for what purpose.
However, most Nigerians observe that one thing that stands out from the new policy is the speed at which the naira continues to strengthen against the dollar at the parallel market.
Concerned Nigerians note that the onus then rests on the CBN to ensure the sustainability of the policy for the overall interest of the nation.
They believe that if the CBN can muster the strength to sustain the policy, it can influence the reduction in the prices of goods and services.
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