NIGERIA’s foreign exchange policy has been a major topic of both local and international commentaries, bordering on controversy for a long time. Most disagreements have centred on market liberalisation and unification.
The Central Bank of Nigeria, CBN, custodian of the nation’s foreign exchange policy and the economic adviser to the government, appears to have remained permanently at loggerheads with liberal economies over its external sector strategies. Also, foreign organisations, especially the World Bank and the International Monetary Fund, IMF, as well as international media channels led by Bloomberg, are not left out in the fight against what they see as unconventional currency policy regime.
For the CBN, the policy mandate is anchored on exchange rate stability. All manners of battles have been waged to achieve this, and in the process, all manners of controversies and even name callings have trailed the policy trajectories.
On the positive side, exchange rate has remained largely stable for most part of regime periods. However, analysts believe that the winnings are either transient or have come at unsustainable cost.
For instance, while the CBN’s suspension of foreign exchange sales from its official purse to about 43 items has resulted in increased production of those items locally, the cost of almost all of them have doubled since the policy.
Even rice, a staple food for many in the country, has become a controversial commodity in the policy calculus.
While CBN believes that tight foreign exchange controls were necessary to guarantee exchange rate stability, the liberalists have pointed to numerous failures of the policy thrust including a permanent upward shift in the official exchange rates, sometimes two to three times in one year. Also, stability in the autonomous segment of the market seems transient.
The IMF and World Bank have intensified calls on Nigeria to speed up currency reforms. But the CBN have been on reforms almost yearly with avalanche of circulars to authorised dealers in the currency markets.
Perhaps, the sour thumb the apex bank needs to address urgently is the unification of the market. A situation where even in the public sector and amongst the power elite the official exchange rate varies significantly does not speak well for transparency and stability. We, therefore, call for a unified exchange policy.
We also advise that CBN should moderate it’s stretching (and sometimes, straying) into fiscal policy mesh when its core mandate in monetary policy remains under pressure.
We understand that the apex bank was trying to fill huge gaps in the fiscal environment that often snowball into major threat to its monetary policy measures. But you cannot be a champion in the wrong field of play.
On the crossfire over ‘‘flexible’’ and ‘‘floating’’ positions, we tend to agree with the CBN that the nation’s currency cannot survive a free float or unguarded flexibility.