- Call on CBN to harmonise rates for economic stability
Economists and financial experts have condemned the implementation of multiple exchange rates in the country, saying that it enhances high level of corruption and naira devaluation.
The exchange rate is the price at which the currency of a country can be exchanged for another country’s currency. Currently, Nigeria operates a multiple exchange rate system, which recognises the official market rate, interbank market rate, parallel market rate and the Bureau de Change rate, among others.
The Dean, Faculty of Business Administration, University of Uyo, Prof. Leo Ukpong, who spoke with The Point on the development, said that the implementation of multiple exchange rates had a negative implication in any economy, not necessarily an emerging economy like Nigeria.
He said any time there were different exchange rates in a country, it would give room for corruption. “This is because you are buying from where it is cheaper and selling to make gain in another segment of the market.
Such action puts an upward pressure and makes the currency to devaluate faster, because you are not using it to buy goods, but to make profit,” he told The Point.
Ukpong, however, noted that the major implication of such was that most activities would end up being conducted in the parallel segment of the market, because that is the only market where buying and selling of foreign exchange takes place due to high rates.
Citing examples, he said, “If you go to the banks right now to buy foreign exchange, they will tell you that they don’t have it at N300, but if you go to the black market, you will find it at N500 to the dollar.
So, it has cost implications because the black market or parallel market is always higher. “The best thing to do is to get rid of it and have just one single rate. Whether you are a bank or a business person, let everyone sell and buy at that single rate.”
He explained that most developed countries had just one single rate, citing Ghana, South Africa and other European countries that operate single exchange rates without the parallel market.
The President, Constance Shareholders Association of Nigeria, Shehu Mikail, urged the CBN to harmonise exchange rates as in advanced countries of the world. He said, “This is imperative because a single exchange rate structure allows influx of Foreign Direct Investments, as investors will be encouraged to put money in various sectors of the economy.
“There is nowhere in the world that you will find different exchange rates. It is always a single rate. It is only in Nigeria that you see oil marketers, manufacturers, importers and even travellers getting forex at different rates.”
If we fix the rate, exports will increase, imports will decrease to expand the foreign exchange availability, while foreign investors will find the market here attractive and come and invest. We would be freeing up time and resources we use now in managing and monitoring our foreign exchange market
On the economic implications of multiple exchange rates, an economist, Mr. Emmanuel Bosco, said it would not allow for steady economic activities, which is why a single rate is needed to normalise economic activities in the country.
“When forex is not evenly sold to customers, many investors are affected and this reduces the speed of economic growth of any nation,” Bosco averred. An investment analyst, Adebayo Adewale, said apart from harmonising the abnormal multiple exchange rates, the current high interest rate should also be reduced for investors to access loans easily.
“A situation where the CBN says one thing and the Minister of Finance says another, is not helping the economy. There must be effective coordination of fiscal and monetary policies to stimulate growth,” Adewale said.
The Chief Executive Officer, Partnership Investment Plc, Mr. Victor Ogiemwonyi, said there must be genuine effort to complete the reforms of the foreign exchange market. He said, “We must collectively agree to have one exchange rate.
The current system of having multiple foreign exchange rates is why we have messed up things. You cannot sell foreign exchange for one rate at the interbank market and another for pilgrims, yet another for airlines and petroleum importers.
“This will allow for arbitrage and rent seeking. No matter how we pretend about it, some people are getting rich on the current system. If we fix this rate, exports will increase, imports will decrease to expand the foreign exchange availability, while foreign investors will find the market here attractive and come and invest.
We will be freeing up time and resources we use now in managing and monitoring of our foreign exchange market.” The President, Manufacturers Association of Nigeria, Dr. Frank Jacobs, also stressed the need to remove foreign exchange restrictions.
Jacobs explained that the industrial sector, especially the manufacturing sub-sector, should be strengthened by removing all obstacles restraining the growth and competitiveness of the sector, such as the indiscriminate changes in the Monetary Policy Rate, which changed as much as four times between 2014 and July 2016, with its distorting effects on the economy.
He noted that the exclusion of 41 items, some of which were essential raw materials, from the official forex market and the failure to synchronise monetary and fiscal policy actions were a big minus for policy makers.
However, the Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, said Nigeria was not the only country with various exchange rates. He observed that wherever there was shortage of foreign exchange and the supply in the official market was not enough to meet the demand of the people, there would be multiple exchange rates.
He said, “It is an economic phenomenon that whenever any product is scarce, the demand is usually high. The excess demand will be subscribed in the parallel market where the higher price will be obtained. So it is not peculiar to Nigeria.
“It is just that the spread is very huge now and that is where the concern is, in the sense that anybody who has a dollar to sell will prefer the parallel market where they could get a higher naira value.”
Chukwu, however, said, “It is not like that in advanced countries because the market price is not controlled. The market price is determined by forces of demand and supply; and once in a while, through the intervention of the regulator by supplying the market with dollars.
“In other advanced economies like Japan, Europe, America and the rest, their market price is determined by demand and supply. There is no window for a parallel market rate.”
