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CBN: No change in Nigeria’s exchange rate structure

The Central Bank of Nigeria (CBN) has dismissed speculation that it has changed the country’s exchange rate structure with the likely intention of floating the naira.
An alteration on the home page of its website last week, which saw CBN replacing the section where it used to publish the naira’s official exchange rate as N305 or N306/$ with: “The naira exchange rate is market-determined,’’ had sparked speculation in local and international financial circles that the apex bank may be finally moving towards a single exchange-rate window.
But in a WhatsApp message he sent yesterday, the Director, Corporate Communications Department, at CBN, Mr. Isaac Okorafor, emphatically denied the speculation.

He stated: “There has been no change in Nigeria’s exchange rate structure. The CBN has not floated the naira. The exchange rate remains stable. Speculations and reports to the contrary are false.” This newspaper’s checks show that the regulator’s website reverted to its original form yesterday.

The CBN has kept its official rate for the naira at roughly 305 against the dollar — almost 20 percent stronger than the rate at the Investors and Exporters’ foreign exchange window (I&E ) FX window, also known as the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) rate, for about three years. It uses this to supply cheap foreign exchange to companies in key sectors of the economy including fuel importers, as well as government departments.

Analysts including Citigroup Inc. and Renaissance Capital have called for a single rate and a freer-floating currency.
But the CBN has CBN retained the N305 per dollar official exchange rate to shield the naira from market fluctuations.

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However, in August 2017, the regulator weakened the Nigerian Foreign Exchange Rate Fixing (NIFEX)- the rate at which it sells dollars to most local companies- by about 10 percent, bringing it closer to the NAFEX. As at then, both NIFEX and NAFEX were already converging toward the naira’s black-market value of N360/$.
Interestingly, although the regulator has denied making changes in the country’s exchange rate structure, the Nigerian Customs Service (NCS), few days ago, reportedly began the implementation of the new CBN’s exchange rate of N326 per dollar for Customs transactions, which hitherto stood at N306 per dollar.
According to reports, the valuation department of Customs at all commands has adjusted the exchange rate on their electronic systems.

It would be recalled that the head of the Nigerian Investment Promotion Commission, Yewande Sadiku, had said last month that the CBN was in talks with other agencies to move to a single rate for the naira.
The International Monetary Fund (IMF) has long been critical of multiple exchange rate , saying the absence of a single exchange rate creates confusion and deters foreign investment.

On Monday, the IMF announced it was reviewing its Multiple Currency Practices (MCP) policy for the first time in almost 40 years.
“By limiting the circumstances in which Fund members may introduce and maintain multiple exchange rates, the multiple-currency practices policy aims to promote orderly exchange arrangements and a stable system of exchange rates,” it said in a statement.
It further stated that: “Directors supported putting in place transitional arrangements to provide adequate time for member countries to adjust their policies, after which the revised MCP policy would become operational.”
Renaissance Capital said in an April note that Nigeria and Venezuela are about the only emerging markets in its coverage that have multiple exchange rates.

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Source: New Telegraph

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