CBN’s new forex regime
It would seem that the new set of guidelines recently launched by the Central Bank of Nigeria [CBN] for tackling the free fall of the value of the Naira against the major currencies of the world may be yielding early positive dividends. According to reports from some Bureau de Change operators, the Naira firmed up […]
It would seem that the new set of guidelines recently launched by the Central Bank of Nigeria [CBN] for tackling the free fall of the value of the Naira against the major currencies of the world may be yielding early positive dividends. According to reports from some Bureau de Change operators, the Naira firmed up in the otherwise volatile black market after the apex bank started implementing the new guidelines, thus diminishing fears that the free fall of the Naira will continue unabated.
Just before the new rules a dollar exchanged for N517 to the dollar, a figure that spawned fears that the dollar was heading for an unprecedented exchange rate of N1,000. Under the new dispensation, CBN relaxed its earlier controls over the sale of forex in a manner that gave wider latitude for retailers to exercise discretion over which end user would get what. For instance, the apex bank directed all banks to sell forex to retail end users at airports without putting into consideration the 60:40 rule in favour of manufacturing and raw materials versus other uses. Also in the new regime, CBN cut down the tenor of its forward sales from the current maximum cycle of 180 days to not more than 60 days from the date of transaction. Thus the new regime aimed at reducing obstacles for end users as much as is possible without hurting the economy.
The bank also expressed its commencement of sale of forex for personal and business transactions which was earlier stopped and is believed to be one of the core culprits for the forex crisis. In the context of this relief the apex bank had written to assure that it would meet the need of parents, guardians and sponsors who are seeking to make payments of school fees and medical bills. It directed banks to sell forex for such purposes. To ease any bottlenecks for end users, the apex bank also directed banks to open up forex retail outlets in airports, just as it offered to clear all outstanding forex transactions already in process.
Welcome as the new guidelines may be, they are at best panic measures which may solve some problems in the short run but prove ineffective in the longer run. Without equivocation it can be stated that the present forex crisis is a consequence of the play out of several factors bordering on its acute scarcity and poor management of same. Import dependent as the Nigerian economy traditionally is, the fall in the international price of oil eroded over 50% of its forex earnings, leaving it with a drastic shortfall of the funds. Even at that the CBN gad been operating a most wasteful forex management regime in which at least 11 different rates are operational, which leaves a wide room for abuse and attendant leakage and wastages. Even with the present new regulations the apex bank seems not to have learnt its lessons especially as such pertains to the problem of multiple exchange rates.
In the light of the widespread abuse of the process the CBN should harmonise all official exchange rates into one, which can be linked with the floating market (black market rate), and adopt voucher schemes for any area in which it considers to grant concessions. The voucher scheme can be designed to incorporate tax reliefs and breaks for dedicated areas of the economy, where fiscal policy can provide additional targeted support.
The ultimate panacea still remains the redesign of the country’s economic policy to favour a determined diversification of the economy in order to generate forex from sources other than oil and to also reduce this country’s near criminal dependence on all manner of foreign-made consumer goods.