…Debits Banks N122 Billion
The Central Bank of Nigeria (CBN) has moved to unify the multiple exchange rates, as to as to generate more local currency from its dollar inflows and further achieve naira stability.
As a result, the apex bank debited N122bn ($338m) from banks’ excess cash with the apex bank before weakening the currency at a retail auction on Friday in a move to unify its multiple exchange rates.
Reuters reported on Monday that Nigeria’s multiple foreign-exchange rates were imposed to manage dollar demand after oil prices crashed.
The central bank, Nigeria’s main forex supplier, asked lenders to bid for dollars at N380 to the dollar on Friday, five per cent above its official rate.
The naira, however, opened weaker at 387 against the dollar on the over-the-counter spot market widely quoted by investors and importers. It further weakened to N462 at the black market on Monday.
The currency had come under pressure in recent months after the coronavirus pandemic and a fall in price of oil, Nigeria’s main export, and as foreign investors exited, leaving the country with large financing gap
Reacting to this, the Organised Private Sector (OPS) commended the step by CBN towards unifying the exchange rate by adjusting the rate at the official Secondary Market Intervention Sales (SMIS) to $380/$1 from $360/$1.
OPS said the development would allow the exchange rate to reflect the market fundamentals and avoid distortions in the economy.
The Lagos Chamber of Commerce and Industry (LCCI), the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) and Nigeria Employers’ Consultative Association (NECA) hailed the adjustment, describing it as a positive development.
The Director-General of the (LCCI), Dr. Muda Yusuf, described the unification of the rates as an important move to stem the looming liquidity crisis in the foreign exchange market.
“It is imperative for the exchange rate to reflect the market fundamentals in order to ensure sustainability and promote efficiency in allocation mechanism. This is also critical for investors’ confidence. This should, however, be complemented with appropriate trade policy regime, fiscal policy measures and institutional strengthening to achieve the objective of heightening self-reliance and economic diversification,” Yusuf said.
He added that the disadvantages of the multiple exchange rate system are the impediments it posed “to the attraction of investment as well as inhibiting the inflow of foreign exchange and creation of transparency issues in the allocation of foreign exchange.”
Mr. Ayo Olukanni of NACCIMA, said the adjustment, to attain convergence at the foreign exchange market was a step in the right direction.
According to him, NACCIMA has always championed the merger of exchange rates in order to ensure predictability and proper planning in the economy.
In a press statement by the Director-General of NECA, Dr. Timothy Olawale said “We are aware of the positive impact of unifying the exchange rate, as we are in full support of shunning multiple currency practices, which we believe have not demonstrated the true reflection of the naira in the market.”