CBN New Policy is Bad for Nigeria’s Economy
A group of Nigerian bankers has expressed concerns about the Central Bank of Nigeria’s (CBN) policy to float the naira, deeming it detrimental to the country’s economy. They highlighted that this policy has led to a significant disparity between the official and parallel exchange markets.
New Policy is Bad for Nigeria’s Economy
A group of Nigerian bankers has expressed concerns about the Central Bank of Nigeria’s (CBN) policy to float the naira, deeming it detrimental to the country’s economy. They highlighted that this policy has led to a significant disparity between the official and parallel exchange markets.
These bankers voiced their reservations during a press conference inaugurating the 2023 Lagos Bankers’ Nite event, themed “Exchange Rate Unification: Global Implications for Households, Organizations, and the Country,” scheduled for August 18, 2023. A suggestion was made to transition toward a managed float approach to stabilize the naira’s value.
An undisclosed source shared insights during a Legit.ng press conference organized by the Chartered Institute of Bankers of Nigeria (CIBN), stating that the naira’s floating should be better regulated. This source recommended adopting a managed floating mechanism instead of allowing the naira to freely fluctuate based solely on market forces, as this uncontrolled approach could lead to speculative behavior.
The source cautioned against relying on a free-floating system due to its inherent speculative nature. Prior to the unification policy, the Lagos chapter of CIBN revealed that there was a N20 difference between the parallel and official exchange markets, but this disparity has now widened to over N200.
The source further emphasized that in other economies, the currency’s value remains relatively stable with a 5% gap between official and parallel markets. In contrast, Nigeria experiences a substantial 80% gap between these markets.
The source also urged President Bola Tinubu to prioritize investments that would bolster Nigeria’s productive sectors. The Bankers’ Nite event has historically served as a significant gathering for affluent bankers, financial industry leaders, and key stakeholders within the Nigerian economy.
In June 2023, the Nigerian government announced the decision to free-float the local currency, resulting in considerable volatility. The naira’s value depreciated significantly, with the parallel market diverging notably from the official market, creating a substantial divide within the foreign exchange market.
During the preceding week, the naira experienced a sharp decline, reaching a rate of N950 to a dollar due to forex scarcity concerns. This prompted a meeting between the Acting Governor of the CBN, Folashodun Shonubi, and President Bola Tinubu.
Shonubi attributed the naira’s decline not to conventional supply and demand dynamics, but to forex speculators. The head of the central bank pledged to address speculative activities and intervene by injecting more forex into the market.
Following this announcement, the naira exhibited a noteworthy recovery, rebounding against the dollar to reach an exchange rate of N860 per dollar as of August 17, 2023, within the parallel exchange market.
