Nigeria Needs Unified Exchange Rate

Nigeria Operates A Multiple Exchange Rate Regime, Which The Central Bank Of Nigeria (Cbn) Has Defended. But The International Monetary Fund (Imf) Has Faulted The Multiple Exchange Rate Regime And Asked The Country To Unify Its Exchange Rate.

“The Imf Says A Unified Exchange Rate Will Impact The Country’s Economy More Positively Than The Multiple Exchange Rate Regime. Imf Nigeria Senior Resident Representative And Mission Chief, Amine Mati, In This Interview With Collins Nweze Speaks On Why Nigeria Should Unify Its Exchange Rate To Grow The Economy And Tackle Inflation.

“What Is The International Monetary Fund’s (Imf’)S Opinion Of Nigeria’s Multiple Exchange  Rate System?

It Is Encouraging That Progress Already Made By The Authorities Towards Unifying The Exchange Rate Windows. However, Restrictions On Access To Foreign Exchange For Certain Categories Of Goods, And The Remaining Multiple Exchange Rates Create Distortions In Both Private And Public Sectors Decision Making. They Discourage Long-Term Investment, Encourage Smuggling And Provide Avenues For Corruption.

“Moving Forward, A Removal Of Foreign Exchange Restrictions, Including Recently Introduced Ones, And A Full Exchange Rate Unification, In Line With The Authorities’ Economic Recovery And Growth Plan (Ergp), Will Help Keep The Parallel Market Premium Low In A More Sustained Manner. It Will Help Nigeria Move Towards A More Diversified Economy.

“The Central Bank Of Nigeria (Cbn) Maintains That Unifying The Exchange Rate Is Not The Solution To Nigeria’s Inflation Problems. Do You Agree?

“Global Trends Suggest That Countries With Multiple Exchange Rates Struggle To See Their Economic Growth Recover And Trade Pick-Up After A Crisis. Countries With Multiple Exchange Rates On Average Also Experience Higher Inflation. With Lowering Inflation And Boosting Growth As Focal Points For Nigeria, Unification Of The Exchange Rate Can Bring Major Gains.

“How Did The Imf Reach The Conclusion That Unifying The Exchange Rate Will Further Improve Nigeria’s Economy? What Specific Benefits Would Such A Policy Bring To Nigeria?

“Our Assessment Is Based On The Experience Of Several Countries Worldwide. In Addition, Our Research Specifically On Nigeria Has Found That Unifying The Exchange Rates And Removing Foreign Exchange Restrictions Is Also Likely To Lower Income Inequality. It Helps Facilitate More Effective Ways Of Protecting Consumers Through Social Safety Nets.

“How Do You Measure Nigeria’s Economic Progress In Terms Of Its Multiple Exchange Rates, Against The Experience Of Countries Such As Brazil And Egypt?

We Welcome Ongoing Unification In Foreign Exchange Windows And The Ergp’s Goal To Move Towards A Unified Regime. This Goal Is In Line With Trends Seen In Other Countries Over Past Decades: Multiple Currency Practices Are Non-Existence In Developed Economies And Have Been On A Declining Trend Globally In Emerging Economies.

What Conditions Need To Be In Place Before Exchange Rate Unification Can Be Achieved?

“Unifying The Exchange Rate Now Being In Accordance With The Ergp’s Goal Would Support Nigeria’s Economy. It Will Be Most Effective As Part Of A Wider Policy Package, With Measures That Include A Focus On Revenue Mobilisation To Make Room For Priority Spending, Tight And Transparent Monetary Policies, A Resilient Banking Sector And Structural Reforms.

“Are There Serious Concerns From The Imf And Some Global Leaders That Nigeria Could Follow The Same Route As Venezuela If It Doesn’t Act Quickly And Unify Its Exchange Rate System?

“The Imf’s View Is That Nigeria’s Long-Term Economic Potential Will Be Improved Significantly With Exchange Rate Unification As It Removes Distortions, Provides Greater Clarity To Economic Operators And A Level Playing Field.

“However, As Stated In The Past, This Is Not A Panacea By Itself As It Needs To Be Part Of A Tight Monetary Policy That Keeps Inflation In Check. It Also Needs To Be Backed By Strengthening Banking Sector Resilience, And Structural Reforms; Such As Governance And Power Sector.

While Currency Floating Or Allowing Depreciation May Seem Like The Right Thing To Do, Is Nigeria In A Good Place To Make Such A Decision?

Moving Towards A More Flexible Exchange Rate Would Be Beneficial To The Nigerian Economy, But A Flexible Exchange Rate Does Not Necessarily Imply That The Currency Will Depreciate, As That Depends On Macroeconomic Fundamentals. Indeed, Our Last Evaluation Published In April, This Year Implied Only A Moderate Misalignment Of The Current Exchange Rate.

“In Summary, A More Flexible And Unified Exchange Rate Will Be Most Effective For Nigeria In The Context Of More Comprehensive Policy Reform Package.

Source  – The Nation