The Centre for the Promotion of Private Enterprise (CPPE) has lauded the bold step by President Bola Tinubu led administration toward the unification of the Naira exchange rate.
Dr Muda Yusuf, founder, CPPE, in a statement on Wednesday in Lagos, said the development would unlock the huge potential for investment, jobs and capital flows and engender investors confidence.
The News Agency of Nigeria (NAN) reports that Central Bank of Nigeria (CBN) on Wednesday introduced a floating exchange rate system in the foreign exchange market by giving traders at the Import and Export (I&E) window the freedom in the exchange rate determination.
Yusuf, however, emphasised the need for government to clarify that the exchange rate unification was not Naira devaluation policy.
He described it as a pricing mechanism that reflects the demand and supply fundamentals in the foreign exchange market and allows for flexible rate adjustments as and when necessary.
“It is a model that is predictable, equitable, transparent and sustainable and a policy regime that would reduce uncertainty and inspire the confidence of investors.
“It would minimise 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 five and 10 percent,” he said.
He listed the benefits of the unified exchange rate regime to include enhanced liquidity in the foreign exchange market, reduced uncertainty, more transparency, and boost of government revenue by a minimum of four trillion Naira.
Yusuf added that the development would lead to the restoration of use of Naira cards for limited international transactions in the short to medium term.
“The erstwhile foreign exchange policy regime on the other hand, was for all practical purposes, a fixed exchange rate regime and created distortions and negative outcomes.
“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 normalises and moves toward 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 foreign exchange demand driven by arbitrage, rent seekers, speculators and other economic parasites would also fizzle out, thus restoring stability to the market.
“However, the Central Bank of Nigeria (CBN) should position itself for periodic intervention in the market, as and when necessary, to stabilise 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,” he said.
