A market determined fx regime is Nigeria’s best option – Muda Yusuf

 With Agency Reports

A market-based rate regime is an approach Nigeria should adopt to manage its foreign exchange. Dr. Muda Yusuf, an economist and former Director-General of the Lagos Chamber of Commerce and Industry, made this point while giving his opinions on “FX Management & Nigeria’s Economic Stability”.

Yusuf said a market-determined FX regime was more sustainable, transparent, predictable, and favourable for investors’.

He argued that this was far better than the fixed FX management, administrative allocation and over-concentration on demand management.

The economist noted that much of the crisis in the foreign exchange market today is self-inflicted, including the ones that are policy inflicted.

He said, “If we allow the market to play a bigger role in the FX market in Nigeria, we will likely see an adjustment from the supply and demand side, that should lead to an equilibrium”.

He believed that the Central Bank of Nigeria (CBN) should liberalize the FX  market and allow the Bureau De Change firms (BDCs) to source independently for their FX.  He stressed that the BDCs could access it through foreign direct investments from the diaspora, portfolio investors, and critical multinationals investing in the country.

“I am not particular about CBN selling FX directly to BDCs, but should be allowed to source for forex locally,” Muda Yusuf added.

The former DG of LCCI decried that several inflows coming into the country were at the parallel market rate instead of the official rate.

His assessment of the I & E FX window pointed out that the rates are not market reflective, and at the NAFEX, you cannot get more than 20% of your demand, which is not adequate. For him, the current window is more of a rationing platform which is not viable.

He pointed out that the rate-fixing in Nigeria’s FX market is creating a supply-side problem, leading to a double whammy of people seeking premium opportunities on the demand side; and the obstruction of supply far below what is supposed to be the market rate.

For him, in a market-determined FX regime, the rates will likely go up, and the premium will reduce if this happens. According to Yusuf, this could lead to a demand reduction.

The analyst believed that an adjustment in the price under a liberalized FX market would lead to a fall in demand and an increase in supply, thereby positively affecting the rates.

Since the first quarter of 2020, Nigeria has faced an exchange rate crisis triggered by the drop in oil prices. It started after two of the world’s largest oil producers, Saudi Arabia and Russia, disagreed on how to proceed concerning oil supply cuts, which triggered a price war that pushed oil prices to crash to as low as under zero dollars.

In March 2020, the world fully became aware of the existential threat that was the Covid-19 pandemic, which has since affected millions of people globally and killed hundreds of thousands.

These twin events have had a telling effect on Nigeria’s economy. As an economy highly dependent on crude, the oil price war meant Nigeria earned less from crude oil sales cascading to an even larger problem.

With oil prices down, pressure on Nigeria’s exchange rate grew, leading to speculations of a devaluation to reflect the true value of the naira. Thus began one of the most significant deluges of policy pronouncements and flip-flops on the management of Nigeria’s foreign currency.

In this tracker, Nairametrics collates a timeline of all the forex-related policy decisions and denials that have occurred since March 2020. This timeline is updated regularly as new information becomes available.

The Central Bank of Nigeria, Governor, Godwin Emefiele, disclosed that the apex bank in partnership with commercial banks will go after Nigerians who bought dollars with the pretence of traveling abroad.

According to him, the bank will find the people and ensure they refund the dollars (PTA/BTA) they bought only to cancel the tickets.

While responding to questions after the MPC meeting on Friday, September 17, 2021, referred to Mr Olumide Oniwinde, the owner of AbokiFX as an illegal FX dealer who will be prosecuted for endangering the Nigerian economy. (Proshare/Nairamatrics)