How to Halt Naira Free Fall, by Experts

 

Omohglobal

Worried about the dwindling fortunes of the naira, a cross-section of experts have suggested short, medium and long term measures to halt its free fall.

The naira has been experiencing a free fall in recent times such that it is having a rippled negative effect on the economy.

Independent checks at the parallel market yesterday showed that the naira exchanged for N890 to a dollar and was N870 on Friday.

The belief in some quarters is that the downward spiral of the naira was made worse by the new naira redesign policy of the Central Bank of Nigeria (CBN).

Speaking in an interview with our correspondent last night, Alhaji Aminu Gwadabe, President of the Association of Bureau De Change Operators of Nigeria (ABCON), said the way out of the quagmire as far as the naira is concerned is many pronged solutions rather than a one-size-fits-all.

“We must abolish the fixed and parallel exchange market rate. This will encourage remittances, export proceeds and capital inflow to increase supply in the market.

“There is a need to also revisit the suspension of the BDCs and inject liquidity into the forex market. We also need to liberalise diaspora remittances exchange rate and finally, ensure effective collaboration with all stakeholders.”

Echoing similar sentiments, Dr Muda Yusuf, CEO, Centre for the Promotion of Private Enterprise (CPPE) said policy options such as adoption of flexible exchange rate regime, improving liquidity in the forex market, liberalisation of the export proceeds, diaspora remittances could be explored to mitigate the current crisis.

While reiterating his desire for a flexible exchange, Yusuf, who is former Director-General at the Lagos Chamber of Commerce and Industry (LCCI), said the adoption of a flexible exchange rate policy regime is a pricing mechanism that reflects the demand and supply fundamentals in the foreign exchange market.

“It is a model that is sustainable, predictable and transparent.  It is a policy regime that would reduce uncertainty and inspire the confidence of investors.  It is a policy framework that would minimise discretion and arbitrage in the foreign exchange allocation mechanism,” he said.

The Nigerian economy, he stressed, “has the capacity to weather the current turmoil if the policy contexts are right.  We have the market, the people and the natural resources. The opportunities that the present situation offers would only be realised if policy obstructions to resource flows are removed.”

In a prognosis of the crisis that has led to spike in the exchange rate, the Director-General of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Mr Olusola Obadimu, said things literally went south when the CBN governor announced the new policy regime on redesigning of the naira.

Obadimu said: “First of all, a panic situation has been created already and that is the real reason why there is some level of apprehension in the system.

“When the CBN governor asked people to bring their money to the bank he never envisaged the kind of situation there is today.

“Now people are afraid to go to the banks for fear that the banks may notify the Economic and Financial Crimes Commission (EFCC) or other law enforcement agencies, especially if they know that their source of money is not legitimate.

“Such people are ready to convert their local currency at any exchange rate just to procure the dollar. That’s what has been happening.

“So the BDCs are getting hauls of cash in local currency in exchange for the dollar. The BDCs are getting more requests for dollar remittance with little inflow of dollars. So the demand is what is affecting the fortunes of the Naira now.”

Just like others suggested, the way forward, Obadimu observed, is for the government to put in place a single FX rate and ensure that no one works at cross-purpose with the policy.