Follow Us on Google
By Omodele Adigun
As the Central Bank of Nigeria(CBN) clarified its recent monetary policy decision as managed float and not free float of Naira, the apex bank has been warned that floating exchange rate of the Naira may spell doom for the local currency
Ex-chief economist of Zenith Bank, Mr Marcel Okeke, while assessing the negative impact of the policy, said “what is already unfolding now even suggests that the Naira is losing its basic role as a store of value.”
Since June 14 and 16 when the CBN announced operational changes to the foreign exchange (forex) market things have no longer been at ease with the Nigerian currency a week after the changes, the Naira, tumbled by 13.9 per cent to N770.38 per US Dollar at the official Investors & Exporters (I & E) window of the forex market.The currency is currently trading around N780/$
Explaining how the Naira is losing its role as a store of value, Okeke said “Investors have started moving to the stock market, where market capitalisation and other indices are suddenly spiking.
Unwittingly, dollarisation of the Nigerian economy is being fast-tracked, as economic agents would now prefer to save (or denominate) their assets in dollars for more stability in the value of their savings and/or assets.
In view of all these, even exporters of non-oil items will be discouraged from repatriating their earnings going forward. This will lead to further scarcity of Forex, and collapse of the Naira in the face of sustained excess demand pressure.
Remember that over the years, Nigeria has been an import-dependent economy, and this cannot change overnight. High taste and preference for foreign goods and services, ostentatious lifestyle, importation of machineries and raw materials, among others, have been the feature of Nigeria from time immemorial. So, the staccato approach of the government in dismantling existing export incentives and other initiatives, calls for some caution.”
Then what is the way forward, he opined: “Government should rather provide a full scale economic development blueprint; that way, people will clearly know where the current administration is really headed. It will also draw and sustain the confidence of both local and foreign investors. This goes without saying that the underlying insecurity in the country must be decisively dealt with, for economic reforms to achieve the desired objectives”.
“From all indications, this barrage of policies, must first unleash unfathomable dimensions of hardship and pains on Nigerians. Naira floating and removal of CBN’s incentives for non-oil exports will first result in more scarcity of forex, and crash of the local currency against the dollar and other foreign currencies. There’s so much demand for forex and very limited supply; so, leaving the forex market management entirely to forces of demand and supply amounts to pushing the Naira value into an abyss.”,he added.
