Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, says contrary to public criticism, the apex bank was not operating a fixed exchange-rate regime but a managed float exchange rate system.
Emefiele made the clarification Thursday while speaking at the ongoing post-election outlook conference organised by BusinessDay in Lagos.
A fixed exchange-rate system is a system where the value of one currency is tied to another, while a managed float exchange-rate regime, otherwise known as dirty float, allows the central bank to influence a country’s exchange rate direction during price fluctuation by buying or selling currencies.
Emefiele explained that the apex bank introduced the investors and exporters’ (I&E) foreign exchange window to create confidence in the Nigerian market by selling the nation’s external reserves.
According to him, the naira was exchanged at N525 to a dollar when the CBN introduced the foreign exchange window in 2017, adding that the initiative coupled with other interventions by the CBN helped to forestall further currency depreciation as projected.
“When we started these interventions, the exchange rate began to drop,” Emefiele said. “It got to N360, which at that time, we thought it was close to the real effective exchange rate and we said we must begin to buy the reserves.”
Emefiele noted that the CBN resisted the urge to allow the naira appreciate beyond N360 in order not to distort inflows to the country from offshore investors, which he said was “very huge” at the time of introducing I&E FX window.
He argued that those who were issuing the money could fight back by considering other markets with sound fundamentals as the exchange rate was becoming too low.
The CBN governor also reiterated the bank’s resolve to maintain a flexible FX regime as much as possible and do its best to ensure price stability.
