CBN’s push for better exchange rate management (2)



Godwin Emefiele, CBN Governor

Rewane explained without equivocations that the determinants of the value of a nation’s currency includes, inflation differential, interest rate differentials, exports of goods and services, terms of trade, current account deficit as well as the tax haven status among others.


Also highlighting the history of the Nigerian foreign exchange market from 1960-1986 Rewane noted: ‘’Between 1960-1980, Nigeria shifted from a fixed regime to a pegged arrangement, then in pre-1973, Nigerian currency was not a traded currency, it was subject to administrative management, exchange rate was largely passive and dictated by the fortunes of the GBP or USD where the naira was pegged to GBP until 1967 when the pound was similarly devalued thereafter, pegged to the dollar.”

In all Rewane stated that in the last 10years, the naira had declined from N130/$1 to N199/$1 representing 50 per cent stressing that presently, a fiscal crisis has led to a monetary crisis adding that the outlook for the naira is full of uncertainties. “Bank of America projects a 10 per cent devaluation to N220/$ by end of 2015 while Rencap projects a value of N235/$ in the next six -12 months even as the EU thinks the naira will be N225/$ by 2016 and N233/$.”

Answering question on whether Nigeria was having currency crisis, the versatile economists said: ‘’Yes, Nigeria has a currency crisis, because the price and value of the naira are at tangents, poor timing of currency adjustments have prolonged currency crisis, subsidies (exchange rate and fuel) are major sources of leakages, fuel subsidy constitutes 30 per cent of Nigeria’s import bill, remove subsidies, aberrational demand pressure will disappears and reduce imports bill of bogus demands by 15-20 per cent.”

He disclosed that this was the best time for Nigeria to remove the oil subsidy from the petroleum sector to allow the nation’s economy finds its level with the aim of increasing the nation’s foreign reserves for the economy to bounce back to life once and for all adding that the present level where oil subsidy is taken the country large chunk of its revenue was not healthy for the economy.

This he said had continued to show negative signs occasioned by the continued slides in the world oil market. “Removal of subsidy is the only panacea to economic growth’’ Rewane added that with subsidy retention constituting 30 per cent of Nigeria’s import bills, the current policy modification by economy planners might not yield the desired result.

He further warned that if fuel subsidy were not dealt with, policy modification would not yield desired result. “Fuel subsidy constitutes 30per cent of Nigeria import bills.

Remove subsidy, aberrational demand pressure disappears,” he noted He said that Nigeria being an oil dependent economy, the volatility of oil prices at the international market could trigger off dual issue of resources and management problem.

Earlier, the CBN Director of Corporate Communications, Ibrahim Muazu who represented the CBN Governor, Godwin Emefiele at the event harped on the need to organise the seminar at such a time so as to acquaint the public on the issue of the dwindling global oil prices and its effects on the country’s economy. “It has become imperative to direct our attention to this topical economic issue considering your role in enlightening and educating the general public with regard to measures that have been taken by the relevant authorities in dealing with the challenges of managing the country’s exchange rates and external reserves,” he said.

In his contributions, the Director, Reserve Management department of the CBN, Lamido Yuguda noted that the growth of an economy amidst a sound financial and political environment attracted foreign investments, brought with it, its attendant benefits.

Thus, sustained capital inflows above outflows cushion the effect of foreign exchange demand as confidence is established in the financial system and the strength of the economy.”

Yuguda explained that for a sustained level of inflow, especially FDI, which is more productive, an economy must possess strong economic fundamentals. ‘’Nigeria was able to attract all types of foreign capital before the 2008 global financial crisis due partly to robust level of reserves, only FPI flow was sustained at a higher level after the crisis.”

He recommended that in order to attract more direct investments that are seen as more stable and less speculative, the country must, therefore, develop the requisite infrastructure for the growth of the real sector. “Security of lives and properties must also be among the top priority of government, there is the need to diversify the sources of foreign exchange earning in order to address the dominance of the oil sector, the National Sovereign Investment Authority  (NSIA), should be strengthened through more funding in order to establish fiscal buffers that will improve the country’s credit rating.”

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