We Won’t Float Naira Except FX Supply Exceeds Demand—CBN

The World Bank and the International Monetary Fund (IMF) should bury the thought that Nigeria will float the Naira when the country is still battling with the foreign exchange (FX) supply shortage, the Central Bank of Nigeria (CBN) has submitted.

Despite the rising price of crude oil, Nigeria, which relies heavily on the commodity to earn forex, is still unable to shore up its external reserves as a result of the shortage in production.

The Organisation of the Petroleum Exporting Countries (OPEC), during the COVID-19 pandemic in 2020, slashed the production quota of members by 10 per cent to help raise the prices at the market after slumping to $20 per barrel and even -$0 at a point.

But after prices stabilised, it gradually increased the oil output of member countries, including Nigeria. However, due to some issues back home, the nation has not been able to meet its threshold, making it very difficult to take advantage of prices hitting above $100 per barrel.
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The shortage in FX in Nigeria has put the local currency under pressure, making it trade at about N419/$ at the official exchange rate window and over N585/$1 at the black market.

For IMF and World Bank, the idea of operating more than one exchange rate regime is killing the Naira but the CBN said it will continue with the managed float FX system until the issues with the supply end of the curve are resolved.

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At the moment, the apex bank intervenes in the market by supplying forex to traders, who must not sell to certain users because they are not qualified for FX. These are importers of items that have local substitutes like milk, sugar, toothpick, rice and others.

The CBN Governor, Mr Godwin Emefiele, while speaking on Thursday on the sidelines of the 2022 Spring Meetings of the IMF and World Bank in the United States, said Nigeria really wants to operate a single forex regime, but doing that at the moment would hurt the economy because of the FX supply issues.

“They want us to free the exchange rate and you do know that this has some impacts on the exchange rate itself.

“When you allow that to happen, it will have an uncontrollable spiral on the Naira but with the managed float system, we have some measures in place to help control the spiral,” he said.

HHowever, he assured the global financial institutions that Nigeria will look inwards to solve the FX issue, noting that the country’s “situation is very peculiar and that is the reason we have always called on the IMF to show understanding and it has, indeed, shown understanding.”

“Our resolutions at the IMF have always suggested that governors should go back to their countries and think of homegrown solutions,” he said, noting that “the IMF and World Bank provide advice that we work with.”

“Even at some of our private meetings, we realise that there are challenges, leading us to adopt homegrown solutions to address them. We cannot adopt what is being proposed; we cannot adopt a free float of our currency. With the reduction of forex for rice or maize, demand will drop. As it drops, we can adjust the exchange rate. We will continue to engage the IMF and World Bank,”