From Uche Usim, Abuja
Central Bank of Nigeria (CBN) Governor, Mr Godwin Emefiele, on Monday disclosed that the bank’s Investors and Exporters (I&E) Forex window, which was created to enable investors and exporters to purchase and sell foreign exchange at the prevailing market rate, has attracted over $50 billion in investments to the country within three years.
Emefiele stated this in Abuja at the opening of the regional course on Exchange Rate Regimes and Policies organised by the West African Institute for Financial and Economic Management (WAIFEM).
Represented by Mrs Omolara Duke, Deputy Director of the Monetary Policy Department of the CBN, Emefiele explained that the objectives of CBN’s exchange rate policy in Nigeria were to preserve the value of the domestic currency, maintain a favourable external reserves position and ensure external balance without compromising the need for internal balance and the overall goal of macroeconomic stability.
He added that for emerging developing economies like Nigeria where the demand for imports remains high, an appropriate exchange rate regime is required to safeguard capital outflow and ring-fence the external reserves.
“The thrust of exchange rate management by the Central Bank of Nigeria is to allow the market system to determine the exchange rate parity in an efficient manner devoid of the activities of speculators and rent-seekers”, he noted.
He recalled that in March 2020, the CBN adjusted the official exchange rate by 15.0 per cent from ₦305/US$ to ₦360/US$ and in July 2020 there was a further adjustment to ₦380/US$ and ₦410/US$ in the first quarter of 2021. The importation of milk, dairy products, maize and corn was restricted to encourage local production, which also dovetailed into the Bank’s backward integration programme in the first and third quarters of 2020.
“On March 8, 2021, CBN introduced the “Naira 4 Dollar Scheme”, intended to boost the inflow of diaspora remittances into the country. All recipients of diaspora remittances through CBN licensed IMTOs to pay N5 for every $1 received as remittance inflow. The initiative has recorded high success.
“In July 2021, the CBN stopped foreign exchange sales Bureaux De Change (BDCs) and commercial banks assumed the roles of providing foreign exchange to meet the needs of small end-users. Fx form A was filled electronically online to prevent illegitimate demand and conserve the external reserves.
Another recent policy to increase supply to the foreign exchange market is the introduction of the RT200 FX Programme, which stands for the Race to US$200 billion in FX Repatriation, is a set of policies, plans, and programmes for non-oil exports that will enable Nigeria to attain the lofty goal of US$200 billion in FX repatriation, exclusively from non-oil exports, over the next three to five years.
“At the last MPC given the uncertainties facing the global economy, particularly rising inflation and the pace of monetary policy normalisation amongst the advanced economies and the challenges it will pose to developing countries such as Nigeria such as reduction in capital inflow, the policy rate was raised at the last MPC by 150bp from 11.5% to 13%”, the CBN Governor stated.
Also speaking, the Director-General of WAIFEM, Dr Baba Musa, said the concentration of attention on the exchange rate is not far-fetched as exchange rates affect cross-border economic transactions.
“Trade, investment, finance, tourism, migration, and many more are all profoundly influenced by international monetary policies, and again as economies become globalised more firms, investors, and workers find their fortunes linked to the exchange rate and its impact on trade and financial flows.
“Many developing-country governments have searched for alternatives to the uncertainty that can prevail on international Currency markets. Policymakers have also rushed to peddle currency nostrums, urging a turn toward dollarisation, managed floating, nominal anchors, target bands, or other options.
“There are both theoretical and empirical reasons to expect globalisation to heighten the importance of the exchange rate. Theoretically, open-economy macroeconomic principles imply that capital mobility profoundly affects exchange rate policy choices. As a result, the government of a financially integrated economy faces a choice between monetary policy autonomy and a fixed exchange rate. If governments opt for a fixed rate, capital mobility makes a monetary stance different from that of the anchor currency. “Alternatively, if governments opt to sustain an independent monetary policy, they must allow their currencies to float. These constraints mean that the economics and politics of monetary and exchange rate policy are likely to be very different in an open economy than an economy that is not”, he explained
Musa added that as much as international economic integration involves increased exposure to international financial and commercial flows, it heightens the concerns of those involved or exposed to international trade and finance. It should be noted that all the currencies in WAIFEM member countries are non-convertible hence the importance of policymakers to appreciate the skills necessary to manage exchange rates.
He said the Course has been designed to cover key topics such as Introduction to key definitions and concepts used in exchange rate analysis; Key theories on exchange rate determination; Real exchange rate equilibrium and misalignment: Implications for external adjustment and growth; The choice of optimal exchange rate regime: further discussions on OCA; Macroeconomic policy tradeoffs of different exchange rate regimes, and the main exchange rate policy challenges in developing and emerging market economies. Others are the foreign exchange market, financial globalisation and capital flows implications for exchange rate management; Monetary policy in managed exchange rate regimes: Constraints and Challenges; Exchange rate dynamics and monetary integration in the ECOWAS countries; Economic integration and exchange rate regimes: Lessons from other regions; Recent Developments in Exchange Rate Policies and Foreign Exchange Rate Market Operations in Sierra Leone; Evolution of foreign exchange (FX) intervention in Nigeria and Ghana: objectives, modalities, effectiveness, and ways to assess the adequacy of foreign exchange reserves, and their management respectively and Recent Developments in Exchange Rate Policies and Foreign Exchange Rate Market Operations in Nigeria and Ghana, respectively.