Monday, September 27, 2021 / 10:00 AM / Ottoabasi Abasiekong for WebTV / Header Image Credit: WebTV
A market-based rate regime is an approach Nigeria should adopt to manage its foreign exchange. Dr. Muda Yusuf, an economist and former Director-General of the Lagos Chamber of Commerce and Industry, made this point while giving his opinions on "FX Management & Nigeria's Economic Stability".
Yusuf said a market-determined FX regime was more sustainable, transparent, predictable, and favourable for investors'.
He argued that this was far better than the fixed FX management, administrative allocation and over-concentration on demand management.
The economist noted that much of the crisis in the foreign exchange market today is self-inflicted, including the ones that are policy inflicted.
He said, "If we allow the market to play a bigger role in the FX market in Nigeria, we will likely see an adjustment from the supply and demand side, that should lead to an equilibrium".
He believed that the Central Bank of Nigeria (CBN) should liberalize the FX market and allow the Bureau De Change firms (BDCs) to source independently for their FX. He stressed that the BDCs could access it through foreign direct investments from the diaspora, portfolio investors, and critical multinationals investing in the country.
"I am not particular about CBN selling FX directly to BDCs, but should be allowed to source for forex locally," Muda Yusuf added.
The former DG of LCCI decried that several inflows coming into the country were at the parallel market rate instead of the official rate.
His assessment of the I & E FX window pointed out that the rates are not market reflective, and at the NAFEX, you cannot get more than 20% of your demand, which is not adequate. For him, the current window is more of a rationing platform which is not viable.
He pointed out that the rate-fixing in Nigeria's FX market is creating a supply-side problem, leading to a double whammy of people seeking premium opportunities on the demand side; and the obstruction of supply far below what is supposed to be the market rate.
For him, in a market-determined FX regime, the rates will likely go up, and the premium will reduce if this happens. According to Yusuf, this could lead to a demand reduction.
The analyst believed that an adjustment in the price under a liberalized FX market would lead to a fall in demand and an increase in supply, thereby positively affecting the rates.