By Collins Nweze
Economic and financial experts have urged the Federal Government to continue to add more items on the exclusion list for foreign exchange.
Doing this, they said will help cut back dollar demand once the lockdown is lifted and support the naira.
They also urged government to adopt the same approach as was done in 2017 when Professor Yemi Osinbajo was the Acting President, and had directed the Central Bank of Nigeria (CBN) to maintain a consistent intervention in the forex market which boosted liquidity in the economy.
The plan also led to the opening of another forex window different from the official rate window.
In 2017, the naira depreciated against the dollar following global economic down-turn as it went to exchange way over N520 to $1.
There was a scarcity of US dollars at the time, which is needed by importers. The scarcity triggered sharp depreciation of the naira with the exchange rate rising to N520 per dollar in February 2017, while the gap between the official exchange rate and the parallel market rate rose to 70 percent. Osinbajo then asked the CBN to inject millions of dollars into the market to help stabilise the naira on the foreign-exchange market. The result was that the Naira appreciated in value and was trading at slightly above N360 to $1 at the parallel market afterwards.
A remarkable step taken by the CBN at the time was the introduction of the Investors and Exporters (I&E) forex window that allows investors and exporters to purchase and sell foreign exchange at the prevailing market rate.
Recall that Osinbajo as Acting President got the CBN to introduce the I&E window. Prior to introduction of the I&E window on April 2017, the nation’s foreign exchange market was bedeviled with acute shortage of supply of foreign exchange due to apathy of foreign investors who exited the nation’s financial markets in droves in the wake of the sharp decline in the nation’s external reserve caused by sharp decline in crude oil prices between starting from July 2014.
According to a forex expert, Jamiu Hamisu ‘‘In 2016, the Naira began depreciating against the Dollar following global economic down-turn. The Naira went to exchange way over N520 to $1. But, when Osinbajo became acting President, Nigerians saw the dollar crashing to exchange at less than N455 to $1. But this was equally as a result of the Central Bank of Nigeria’s intervention in Forex.
‘‘During the period, Osinbajo took some far-reaching economic measures to prop up the country’s currency, the naira. There was a scarcity of US dollars at the time, which is needed by importers. So, he asked the Central Bank to inject millions of dollars into the market to help stabilise the naira on the foreign-exchange market.
“On February 16, 2017, he presided over the first National Economic Council meeting of the year and directed the CBN to review the foreign exchange policy. The meeting also resolved that fresh $250 million be injected into the Sovereign Wealth Fund (SWF). The CBN subsequently released about $500 million through the interbank market, where the 23 banks bought $371 million.The government need to adopt the same measures which I believe will strengthen the naira.’’
A foreign exchange trader, Patrick Oga noted that the major instruments to ensure naira stability is the oil price and reserves “and these two today are shaking. The best the CBN can do is to continue to hold the naira. The only place we can see naira depreciation is at the parallel market and the BDC, so what they will continue to do is to put them under control.”
Also, a financial analyst, Fred Balogun said: “Once all of this is over, they will commence selling to them to moderate the volatility in that market so what they will continue to do is to use same foreign exchange management policies and add some other things to the exclusion list. So what they will continue to do is to use forex demand management policy while they try to whip the BDC under control. The case for further Naira re-pricing is strong,” he said.
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