How a unified exHow a unified exchange rate regime will impact Nigeria’s...

How a unified exHow a unified exchange rate regime will impact Nigeria’s economy

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Analysts at Financial Derivatives Company Limited have made a strong case for a unified exchange rate regime, saying this is critical to jump starting the nation’s economy.

Among other things they said that a unified exchange rate impacts the economy positively more than the current multiple exchange rate regime, which they noted creates opportunity for arbitrage and can trigger hyperinflation, as experienced by Venezuela.
Noting the the number of countries maintaining multiple exchange rates has been declining since 1990s; they argued that the possibility of exchange rate convergence in Nigeria is now less remote.
They made this observation in an article titled Floating Exchange Rate: A Road to Perdition – CBN (Matters Arising)”, published in the FDC Bi-monthly update. The article was in response to recent comments by the CBN Governor, Mr. Godwin Emefiele, who in his response to the presidential candidate of the Peoples Democratic Party, Alhaji Atiku Abubakar’s desire to float the naira, said that floating the naira will lead to economic perdition.
Atiku’s forex policy In November 2018, Alhaji Atiku Abubakar had the said that if elected president he would abolish the current multiple exchange regime and instead float the naira. In an interview with the Africa Report, Atiku said: “I would prefer to float the naira because I believe that will bring about a more stable exchange rate.
Therefore, foreign investors are more likely to return to Nigeria and invest as much as possible. We have to create more incentives for foreign investment and relax conditionality, remove regulations as much as possible,” said.
When asked about the possibility of this approach driving up inflation, he said: “There could be devaluation and there could be a lot of inflow of foreign currency into the country. The devaluation that is likely to result can be balanced with the relatively huge (sums of) foreign currency that will be coming into the country. “We had that situation prior to the departure of (former president) Goodluck Jonathan.
At that time, we had a pile of foreign investment in the country, and there was stability of the naira. So people did not have to go to the central bank to look for foreign exchange because there was foreign exchange in the market and in the banks. So it could turn out to be a win-win situation.”

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