The Central Bank of Nigeria should abandon the fixed exchange rate system and let the naira float freely against major currencies, said Alhaji Aminu Gwadabe, the head of a Nigerian association of money changers. The leader also criticized the central bank’s recent interest rate adjustment to 13%, which he said could have a negative impact on Nigeria’s underperforming economy.
The Central Bank must intervene to save the naira
The head of a Nigerian Bureau de Change Operators Association, Alhaji Aminu Gwadabe, has urged the country’s monetary authorities to consider letting the local currency float freely against the US dollar. According to Gwadabe, this will help prevent further depreciation of the naira.
In an interview with the Nigerian News Agency, Gwadabe is also cited advising the Central Bank of Nigeria (CBN) to consider intervening in the foreign exchange markets. He would have said:
The CBN should simultaneously undertake a large-scale dollar intervention in the open market which can inspire confidence in the Naira and reverse the current slide. Once there is a significant positive move, the market will react and in all likelihood trigger an avalanche of panic selling and further support the Naira.
Gwadabe also reportedly said that the CBN could still make a profit from buying back dollars on the open market.
Comments from Gwadabe, whose members of the organization were previously accused to fuel the free fall of the naira in the parallel foreign exchange markets, followed by the recent reports of the fall of the naira and the CBN’s subsequent call on Nigerians to stop using the greenback for speculative purposes. With the latest fall, the parallel market naira exchange rate of just over 700 naira for every dollar against the official exchange rate of 424 naira implies that the currency could be overvalued by almost 70%.
Cashing in of dollar remittances puts pressure on the naira
Meanwhile, the News Agency of Nigeria report also quotes Gwadabe questioning the CBN’s decision to adjust the monetary policy rate (MPR) to 13% per annum. According to Gwadabe, the adjustment is likely to have a negative impact on Nigeria’s underperforming economy.
“Raise MPR contracts on the supply side is the wrong prescription. Let’s not copy the Americans who target inflation with FED rates to rein in the money supply; their factors of production have been fully mobilized, ours is less than 20% and needs a supply boost,” says Gwadabe.
Instead of increasing the rate, Gwadabe recommended reducing the rate to 5%, which he said “seems more appropriate”.
Regarding the CBN’s decision to allow recipients of remittances to make withdrawals in dollars, Gwadabe claimed that this “fuels currency substitution”. In addition to putting more pressure on the exchange rate and inflation, this central bank policy “has no statutory basis unlike domiciliary accounts, so it is illegal.”
Gwadabe also claimed that the solution to the Nigerian currency’s problems “must also be psychological” because “current panic buying is driven more by psychology and less by economic fundamentals.”
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