…Unify exchange rate to tackle manipulations, experts tell CBN
The nation’s currency, the naira, has lost 82.77 per cent of its value against the United States dollar since President Muhammadu Buhari took over the affairs of the country on May 29, 2015.
When the President took over the mantle of leadership of the country about five years ago, the value of the naira, according to figures obtained from the Central Bank of Nigeria, was N196.97 to one US dollar.
Then, the foreign exchange inflow and outflow, through the Central Bank of Nigeria, amounted to $6.97bn and $8.2bn, respectively. This resulted in a net outflow of $1.22bn.
At that time, the foreign exchange sales by the CBN to authorised dealers stood at $7.35bn, compared with $10.9bn in the first quarter of 2015.
Findings revealed that during the first three months of the current administration, the average exchange rate of the US dollar at the inter-bank window was N196.99.
When the President took over the mantle of leadership of the country about five years ago, the value of the naira, according to figures obtained from the Central Bank of Nigeria, was N196.97 to one US dollar
Relative to the levels in the preceding quarter, this indicated respective depreciation of 0.01 at the inter-bank segment of the foreign exchange market.
The CBN data revealed that foreign exchange inflow and outflow, through the apex bank, amounted to $11.11bn and $9.52bn, respectively, resulting in a net inflow of $1.59bn.
Foreign exchange sales by the CBN to authorised dealers amounted to $8.04bn, compared with $10.2bn in the preceding quarter.
In the fourth quarter of 2019, there was no change in the average exchange rate of the naira vis-à-vis the US dollar at the inter-bank market.
However, foreign exchange inflow and outflow through the CBN stood at $7.14bn and $7.76bn, respectively, in the review period, resulting in a net outflow of $0.62bn.
Similarly, foreign exchange sales by CBN authorised dealers amounted to $7.01bn.
In the first, second, third and fourth quarters of 2016, data from CBN showed that the country’s currency experienced a sharp decline at the foreign exchange market.
The sharp decline in the value of the naira was as a result of its devaluation, which was carried out by the apex bank.
In June 2016, the CBN Governor, Godwin Emefiele, announced that Nigeria was moving to a “flexible exchange rate” policy, a move some analysts said had increased speculation and worsened the currency situation.
The exchange rate of the naira to the United States dollar fell from N197 in the first quarter of 2016 to N209.13, N303.16 and N305.21 in the second, third and fourth quarters respectively.
During those periods, the CBN intervention to authorised dealers in the foreign exchange market was
$4.67bn, $4.31bn, $5.30bn and $2.9bn, respectively.
In 2017, the naira recorded a marginal depreciation by exchanging for N305.64, N305.76, N305.81 and N305.96 to the dollar respectively.
Analysis of the CBN data showed that the apex bank, in a bid to stabilise the naira in the foreign exchange market, sold for $2.15bn, $6.40bn, $6.49bn, and $5.08bn in the first, second, third and fourth quarters respectively.
In 2017, the CBN introduced the Investor and Exporter window, allowing the exchange rate to trade at between N360/$1 and N366/$1, while it retained N305/$1 as its official rate. It also created other exchange rate windows.
For the 2018 fiscal period, the average naira exchange rate to the dollar was put at N305.81, N305.77, N306.03 and N306.70 in the first, second, third and fourth quarters, respectively, while the CBN intervened in the market with $10.85bn, $7.90bn, $11.88bn and $9.18bn.
In the 2019 period, the currency maintained relative stability as it exchanged for N306.84, N306.87, N306.89 and N306.95 to the United States dollar in the first, second, third and fourth quarters, respectively.
In the 2020 fiscal period, the naira came under huge pressure, owing to low foreign exchange receipts caused by a crash in global oil price.
As a result of this development, the CBN, in March this year, technically devalued the naira to exchange to the dollar at N360, from N307.
The apex bank took this decision after all interventions in the market, such as imposing sanctions on errant operators, and the use of moral suasion to curb illegal forex operations, did not sustain the exchange rate.
In a circu US dollarlar to the operators in the sector, the CBN merged the rates at both the Bureau De Change rate and Import & Export window at N360.
The CBN on its twitter handle said the currency was not a devaluation but an “adjustment of price.”
The Minister of Finance, Budget and National Planning, Zainab Ahmed, had said that the Federal Government would seek to unify the exchange rates so as to generate more revenue from foreign exchange earnings and manage the rate in a sustainable manner.
Ahmed had said that the government would direct oil firms to sell dollars to the CBN, as opposed to the state-owned corporation NNPC.
She had noted that the government would deregulate petroleum prices as part of measures to safeguard oil revenues.
The policy is expected to be implemented over a 12-month period.
Nigeria had operated a multiple exchange rate regime, which the central bank has used to manage the pressure on the naira.
DOLLAR SHORTAGES AND EFFECT ON ECONOMY
But dollar shortages have plagued the economy after a coronavirus-induced oil price crash slashed government revenues and weakened its currency.
Speaking on the development, the President, Association of Capital Market Academics of Nigeria, Prof. Uche Uwaleke, said that the plan by the Federal Government to unify the country’s exchange rate would translate into increased naira inflows into the federation account.
He said this would help the three tiers of government to have more money to distribute from the federation account.
Uwaleke added that the move, if implemented, would eliminate opportunities for currency round-tripping and sharp practices associated with having multiple exchange rates.
In his comments on the development, an Economist, Odilim Enwagbara, said the multiple exchange rate was fuelling corruption and encouraging round-ripping.
He said, “The CBN should shut all multiple foreign exchange windows because if Nigeria wants to be a modern economy, then this thing must stop. What we need to do is to allow people to bring in forex and take them away unrestricted. If you allow that, more forex will enter the country than leaving the country.
“When you restrict access to foreign exchange for importation of certain products, they go to the black market to access forex and we know that these people from black market get forex from the cheapest windows and this causes problems in the forex market.”
