Why Nigeria’s forex unification must be effected with caution – Finance professor

A professor of Finance and Capital Market at the Nasarawa State University, Uche Uwaleke, has called for “cautious optimism” on the Federal government’s new foreign exchange unification policy. 

Uwaleke, who spoke in a monitored broadcast on Tuesday, June 27, on the Arise Television programme Business Morning, said the government must intensify efforts at improving the supply side of the dollar into the economy to prevent the policy from backfiring.

President Bola Ahmed Tinubu has made foreign exchange unification and fuel subsidy removal key policy directions of his administration, but Uwaleke has asserted certain conditions must be fulfilled to enable success.

“You have seen how the market has reacted to the forex situation already. A country must have sufficient reserves before pegging its currency to the dollar to sustain that. Another precondition is to diversify your export base.

“You can have a managed float system like Nigeria is doing, but transitioning will be done with caution. Our external reserves have dropped to about $1 billion since we commenced this forex unification project. This is why the Federal government and sub-nationals must intensify efforts to ensure increased supply and enable the convergence of the rates,” Uwaleke said.

He posited that the Central Bank of Nigeria (CBN) might need to increase interest rates above 18.5 per cent to enable expected capital inflows.

“Central banks all over the world face a dilemma, and that is why the interest rates need to go up to attract capital inflows from foreign investors. Egypt did a similar policy and have not recovered from it till today. The International Monetary Fund is even telling them that they have not done enough,” he said.

He stressed the importance of Nigeria diversifying its export base to attract more foreign exchange into the economy.




     

     

    Notably, the exchange rate between the naira and the dollar at the investor and exporter window went for as high as N840/$1 on June 26, 2023, sending jitters to currency watchers.

    This is the highest rate traded for the dollar on the official market since the I&E window was launched. The last highest intra-day high was N815/$1.

    Nigeria had adopted a market-driven exchange rate policy two weeks ago, leading to an immediate depreciation of the exchange rate from about N471.67/$1 to an average of N765/$1.

    In terms of turnover, the I&E window recorded a volume of $198.13 million on Monday, June 26, 2023. Total turnover since the revised I&E window was launched is about $1.4 billion.

    Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.

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