Nigerians continue to deal with the nightmare called forex scarcity as the country’s currency, the Naira, continues its free fall against major world currencies.
A stinging recession caused majorly by the hammer blow of the global crash in oil prices — something that account for about 70 per cent of the country’s revenue— and ongoing attacks on oil infrastructure in the Niger Delta, means Nigerians are unable to get their hands on much needed dollars to pay for goods and services that are sourced abroad .
But the response to the Naira’s slump has made matters worse. In February 2015, the central bank of Nigeria, CBN, fixed the Naira at 197-199 per dollar in an attempt to stop its rapid plunge. To protect the foreign reserves, the importation of many goods, ranging from toothpicks to rice was also banned. Yet, this has not helped matters.
At present, the official Naira exchange rate against the Dollar is N305 – 1 Dollar but this has not stopped it from being traded as high as N510 at the black market. This might be one of the things that informed the Central Bank’s decision on Monday to announce a new foreign exchange policy.
According to the apex bank, the new policy will ease the difficulties encountered by Nigerians in obtaining funds for foreign exchange transactions. It would also, henceforth, be providing direct additional funding to banks to meet the needs of Nigerians for personal and business travel, medical needs, and school fees, effective immediately.
The new policy is also expected to bring these 11 benefits to Nigerians if efficiently implemented:
1. FOREX to be provided directly to Nigerians through deposit money banks.;
2. CBN to fund personal and business travels;
3. FOREX for school fees by Nigerian students to be paid directly to specified institutions through banks;
4. Medical bills by Nigerians to be paid directly to the specified hospitals abroad through the banks;
5. All retail transactions to be settled at a rate not exceeding 20 per cent above the prevailing inter-bank market rate.
6. Banks to receive FOREX to be sold to customers commensurate with their demand per week;
7. Supply of FOREX to retail end-users to be sustained by the CBN;
8. CBN’s forward sales tenor significantly reduced from the current maximum cycle of 180 days, to no more than 60 days from the date of transaction;
9. Banks to open FOREX retail outlets at major airports to ease travelers’ burden and ensure settlement on transactions;
10. Give priority FOREX allocation to the manufacturing sector;
11. Allocation/utilisation rules on commercial banks removed
What is simply means is that there won’t be anything like black market or parallel market and CBN official rate. With the new policy, the CBN has simply ceased interference with exchange rate. Consequently the exchange rates will be based strictly on demand and availability.
Financial analysts are predicting that the new policy might mean that the era of the Naira losing much value might be over as they expect it will remain within the 300 to 400 vicinity against the US Dollar.
It is good that non-oil exporters are allowed into the FX market to increase the supply side chain of FX. This will allow inflow of FX currency especially the dollar to come into the country.
Allowing market forces to determine the exchange rate is good. Although it is hoped that these measures will enable the Naira to gain considerable strength, it however remain to be seen given the country’s trade deficits and huge import dependency. However, this may assist to reduce round tripping frequently perpetrated by Banks and politicians who have unrestricted access to the dollar.
Should the CBN make effort to streamline the interest rate to reflect the economic recession the country is currently facing as they have done for the FX, Nigeria may begin to see short-long term economic boom
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