CBN initiates steps to harmonise exchange rates

Wale Ameen

Online Editor

There are indications that the Central Bank of Nigeria as at Friday has began gradual harmonisation of the exchange rates. This follows the removal of the N379/$1 official exchange rate from it’s website.

The move is seen as an indication of effort by the bank to harmonisation of the harmonisation and tactical devaluation of the naira.

The apex bank last adjusted the official exchange rate in August 2020 to N379/$1. This has been the official rate used even as multiple exchange rate regimes have also existed and dominated the forex market for several years now.

It should be noted however that all government transactions have since 2021 been converted using the prevailing NAFEX exchange rate.

The naira exchanges at N411.25/$1 on the Investors and exporters (I&E) window after the extension of the CBN’s ‘Naira for Dollar’ policy aimed at attracting more foreign capital into the Nigerian economy.

At the parallel market however, the naira exchanged at N484/$1, weaker than N483/$1 it exchanged on Thursday.

Last November, the CBN had devalued the naira by N6/$1 across all exchange rate lines in line with the exchange rate unification agenda of the apex bank as recommended by the International Monetary Fund (IMF) and World Bank.

In a weekly exchange rate for disbursement of proceeds of International Money Transfer Service Operators (IMTOs), all authorised dealers, Bureau De Change (BDC) Operators and Service Providers were advised to add N6 across all rates.

The CBN governor speaking at the 55th Annual Bankers’ Dinner in Lagos, said the need to adjust for the decrease in supply of foreign exchange led to the depreciation of the naira.

“With the decline in our foreign exchange earnings and successive exchange rate adjustments, the CBN has continued to implement a demand management framework, which is designed to bolster the production of items that can be produced in Nigeria, and aid conservation of our external reserves,” he said.

Emefiele explained that due to the unprecedented nature of the shock, the apex bank has continued to favour a gradual liberalisation of the foreign exchange market in order to smoothen exchange rate volatility and mitigate the impact which rapid changes in the exchange rate could have on key macro-economic variables.

This, he said, was in line with the international best practices in countries where managed float arrangements are in operation.

“At the same time, measures are being taken by the authorities to improve our non-oil exports and other sources of foreign exchange. These measures have helped to prevent a significant decline in our reserves,” he said.

The International Monetary Fund (IMF) said exchange rate rigidities have constrained the economy’s ability to absorb external shocks.

The IMF insisted that restrictions on access to foreign exchange for certain categories of goods and multiple exchange rates create distortions in both private and public sectors’ decision making. They discourage long-term investment, encourage smuggling and provide avenues for corruption.

Moving forward, the Fund suggested removal of foreign exchange restrictions, and full exchange rate unification in line with the authorities’ Economic Recovery and Growth Plan (ERGP), will help keep the parallel market premium low in a more sustained manner.