Exchange rate policy may trigger forex hoarding, inflation — Experts

Exchange rate policy may trigger forex hoarding

The introduction of the longer-term contract on the naira in a move to attract more foreign inflows, shore up dwindling dollar reserves and stave off currency devaluation, by the Central Bank of Nigeria, may lead to hoarding of foreign currencies and distortion in the exchange rate, experts have said.

Some industry experts who spoke to our correspondent said that such policies had both positive and negative sides.

According to them, the offer of the longer-term naira contracts to lure investors and shore up forex reserves might lead to inflation and forex hoarding.

Reuters had reported that the CBN on Thursday, offered naira-futures contracts for five-year settlement for the first time, priced at 379.81 naira to the dollar.

The President, Association of Bureaux De Change Operators of Nigeria, Dr Aminu Gwadabe, said, “I think the purpose is to enhance foreign reserves and increase foreign inflows because the reserves have been going down.

“This is a very serious pointer that there are a lot of inflows that can be tied down for the next five years.

“However, the move will portend speculation; forex hoarding and that could even distort the present exchange rate stability in the market.”

He also observed that there was much liquidity in the market and the interest rate was down.

Though the purpose was for the inflow to come into the country, he said some people could convert the naira to dollar and move it abroad into the derivatives and make more money.

A former President, Association of National Accountants of Nigeria, Dr Sam Nzekwe, also said it would lead to inflation and forex hoarding.

He said the multiple windows for exchange rate should be cancelled and a uniform rate should be adopted.

According to him, a situation where the official exchange rate was N305 to a dollar and individuals bought at N358 per dollar would continue to breed round tripping and fraudulent activities.

“This multiple window is not healthy at all because somebody will hide under the multiple windows and be feeding fat on it, so they are just unnecessarily creating loopholes to play into,” he said.

Nzekwe said the policy would create forex hoarding as people would want to make abnormal gain.

He said, “We have not really come out of recession because it is only when you are producing that you can say there is economic growth.

“Even the very little you are producing in agriculture is affected because people are not going to the farm because of insecurity.

“In manufacturing, they are not producing well because of electricity, and infrastructure problems. A lot of people are out of work, no job for many graduates. It will compound income, security, social problem.

“Let the economy start working, because the economy is not producing as such.”



Source: Punch

Author: abokimallamfx