Unification of exchange rate will boost investors’ confidence, create jobs, says CPPE



Uba Group

The Centre for the Promotion of Private Enterprise has applauded the bold step taken by the Tinubu administration towards the unification of the naira exchange rate.

Muda Yusuf, Director and Chief Executive of CPPE, hinted that liberalisation of the foreign exchange market would unlock the huge potentials for investment, jobs and capital flows.

He also noted that investors’ confidence would be positively impacted.

Yusuf explained that liberalisation does not mean that the naira is devalued but a pricing mechanism that reflects the demand and supply fundamentals in the foreign exchange market.

“It is a framework which allows for flexible rate adjustments as and when necessary. It is a model that is predictable, equitable, transparent and sustainable. It is a policy regime that would reduce uncertainty and inspire the confidence of investors. It would minimize discretion and arbitrage in the foreign exchange allocation mechanism. Rate unification does not imply that rates will be exactly the same in all segments of the market. The objective is to ensure that the differentials are very minimal, possibly between 5-10%,” he said.

According to him, unified exchange rate regime will enhance liquidity in the foreign exchange market, reduce uncertainty in the foreign exchange market and therefore enhances the confidence of investors among other benefits.

His words: “In the short term, we expect a depreciation of the currency in the official window because of the huge demand backlog. But as the market conditions normalize and move towards equilibrium, the rate would moderate. We also expect the new policy regime to boost inflows and strengthen the supply side amidst elevated investors’ confidence. The component of forex demand driven by arbitrage, rent seekers, speculators and other economic parasites would also fizzle out, thus restoring stability to the forex market.”

However, he urged the CBN to position itself for periodic intervention in the forex market, as and when necessary, to stabilize the exchange rate and prevent volatility.

“This should happen not by fixing rate, but by boosting supply to the extent that the reserves can support,” Yusuf said.