Analysts have advocated for foreign exchange determining mechanism to allow free float of the naira, which would subsequently reduce forex rate viability to achieve monetary stability.
The Central Bank of Nigeria (CBN) last week adjusted its clearing rate at the inter-bank market to N197/$ from N196.65k/$. At the Bureau De Change, the local currency trades around N242/$, while it trades around N197 at the inter-bank market.
Bismarck Rewane, managing director/CEO, Financial Derivative, Lagos, who spoke on “Evolution of the foreign exchange in Nigeria and the Way Forward,” said Nigeria was facing currency crisis, saying the CBN had done its best to manage the currency but there was need to move to market determining price.
Speaking at the 20th seminar for Finance Correspondents and Business Editors organised by the CBN in Calabar, Cross River State, Rewane said that poor timing of currency adjustment had prolonged currency crisis.
On the issue of fuel subsidy, he said the Federal Government should remove it for the foreign exchange rate policies to be efficient on the economy.
The economist believes that when government removes subsidy from petrol, the actual value of the naira would be determined and then the exchange rate will be brought down, making the currency adjustment minimal.
He said failure to embark on oil subsidy removal could erode the gains to be benefitted from all the exchange rates policies being implemented by the CBN. Apart from the removal of oil subsidy, government need to consider structural adjustment otherwise the naira would continue to ‘suffer,’ he said.
He, however, sees CBN’s closure of the Wholesale Dutch Auction System (WDAS) and Retail Dutch Auction System (RDAS) and the sanitisation of the inter-bank market to control the forex market as a welcome development.
Also speaking at the seminar, Akinsowon Dawodu, chief executive, Citibank Nigeria Limited, Lagos, said the structure of the economy had to fundamentally change, citing example with Brazil, which in 1999 first devalued its currency and its float by adjusting its fiscal policy.
Represented by Sharafdeen Mohammed, head of strategy, Citibank, he said market-led economy should be the best float.
Delivering a paper on “Impact of Closure of RDAS and WDAS Segment of the Foreign Exchange Market I Nigeria,” he said closure of the two windows was a good step in the right direction, but better if the market determine the price.
Hope Moses-Ashike & Onyinye Nwachukwu
