Oyetunji Abioye and Ifeanyi Onuba
The Central Bank of Nigeria has been advised not to listen to suggestions in some quarters that it should allow the naira to freely float in the foreign exchange market.
The Head, Banking and Finance Department, Nasarawa State University, Uche Uwaleke, stated this in a paper he presented at a CBN workshop on enhancing domestic production as a panacea for growth and foreign exchange conservation.
A free-float foreign exchange market is one that allows the forces of demand and supply to determine the exchange rate of currencies.
The apex bank, which is currently using the managed-float foreign exchange system, has been under pressure from both local and international players to allow the naira value to be determined by market forces without any form of intervention.
Uwaleke said since the nation’s foreign exchange reserves with the CBN was less than $32bn, allowing the forces of demand and supply to totally determine price in the foreign exchange market would not achieve the needed results as being canvassed by some people.
He charged the apex bank not to succumb to pressure, noting that Egypt, which succumbed to pressure to freely float its currency, had seen its currency depreciate more than envisaged.
Uwaleke, an Associate Professor of Finance, noted that the import-dependent structure of the Nigerian economy had led to the depletion of the nation’s foreign exchange reserves, fuelled inflation, depressed growth and created unemployment.
The present situation of the Nigerian economy, he added, provided an opportunity to look inwards in a bid to trigger economic growth and development.
He said, “In order to boost the economy, the current demand management, which involves forex access restriction of items that can be produced locally, should be sustained.
“I am not saying that the policy should be kept forever, but we should sustain it until we get out of recession. If our reserves get to a comfort zone of about $32bn, then we can begin to think of how to relax the policy.
“If we don’t have this $32bn, we shouldn’t be thinking of floating the currency. Nigeria needs a minimum of $32bn to be regarded as comfortable and that is enough to finance seven months of imports. So if we don’t have this $32bn, we shouldn’t be thinking of floating the currency.”
Other experts, who spoke on the development, also advised against the free floating of the naira, saying such a move could distort the country’s economic plans.
The Chief Executive Officer, Afrinvest West Africa West Africa Limited, Mr. Ike Chioke, said, “Why would the CBN flee-float the naira? What is important is for us to remove policies that can distort the value of the naira. We spoke against compelling banks to sell 60 per cent of forex to manufacturers. It is good that the CBN has removed it.
“I think the key thing is to allow greater transparency in the market. I will not advise the CBN to free-float the currency of a developing economy like ours. The market may move against us and distort our economic plans.”
The Director-General, West Africa Institute of Economic and Management Studies, Prof. Akpan Ekpo, said, “The CBN should not fully float the naira; a flexible exchange rate regime is preferred in principle; but in practice, a managed float is desirable.
“The economy earns forex mainly from exporting crude oil. What the CBN is doing now is in the right direction. The problem is whether it is sustainable.”
An economic expert, Mr. Sewa Wusu, said there was no economy in the world that fully float its currency.
He said what was important was for the CBN to allow greater transparency.
However, a professor of Economics at the University of Uyo, Prof. Leo Ukpong, insisted that fully floating the naira was the way forward.
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