By Adaeze Okechukwu
…As CIBN kicks against flexible exchange rate
THE Central Bank of Nigeria, CBN, has indicated that the performance of the Investor and Exporter (I&E) foreign exchange window has exceeded the expectations it had when the window was introduced in April, 2017.
Deputy Governor, CBN, Dr. Joseph Nnanna, disclosed this on the side-lines of the 2017 Chartered Institute of Bankers of Nigeria (CIBN) investiture programme themed, ‘Coherent set of policies for greater exchange rate flexibility,’ held in Lagos last Saturday.
Nnanna stated: “The I&E FX window is truly a mighty success, because its performance has exceeded our expectations. Within four months the I&E window was introduced, we have seen a volume of over $10 billion. It’s a huge success; and we therefore encourage other countries to adopt this system”.
He explained that the different exchange rates were slowly converging and that the CBN has no plans to force this convergence in other to speed up the appreciation of the Naira in the parallel market.
“The IMF consistently talks about the need for a single exchange rate. This single exchange rate can be achieved organically or inorganically. The CBN believes that the organic convergence is the way forward. The inorganic convergence involves engaging all possible measures to force the various exchange rates to align. This will definitely lead to arbitrage. That is exactly what we do not want.
“We can say we have achieved stability in the FX market and we expect it to remain stable even as we conclude the last quarter of the year. The sustainability of the naira is already evident.”
He further explained that despite the prominent gap between the inter-bank rate and the indicative exchange rate for the I&E Window, known as Nigerian Autonomous Foreign Exchange, NAFEX, the CBN will not in any way force a convergence.
He said that the convergence, which may appear to be happening slowly, will occur naturally in due time.
Speaking on the exchange rate regime, Chairman of Council, CIBN, Prof, Segun Ajibola averred that Nigeria cannot practise the floating exchange rate system because of the high volatility in the FX market.
He stated: “Flexible exchange rate is helpful in an environment where there are no hiccups in the foreign exchange management. However, in an economy such as Nigeria, with over dependence on the external sector for basic commodities and high reliance on the oil sector, the country runs the risk of accelerating exchange rate if it is allowed to be completely determined by market forces.
“There is almost no economy in the world that has its FX market succumbing completely to the forces of demand and supply. The best we have seen is a managed float system, which is what the CBN introduced in February this year. Nonetheless, as the economy diversifies and other foreign exchange earnings increase especially the non-oil exports are stabilises, then the exchange rate can tend towards a flexible one.”