Economic analysts have for a long time been calling for the unification of the multiple foreign exchange rates in the country, claiming that it has given room for arbitrage. So, President Bola Tinubu’s announcement of plans to unify the country’s forex rates during his inaugural speech sent the financial market into a frenzy. OLUWAKEMI ABIMBOLA writes on how the market received the eventual devaluation of the naira on Wednesday by Central Bank of Nigeria
In his inaugural speech, President Bola Tinubu promised, on May 29, a unified foreign exchange rate regime and an end to the country’s multiple forex rates era, which has been a pain point to investors, resulting in a consistent drop in the foreign capital inflow over the years.
President Tinubu said that a unified exchange rate would redirect funds into meaningful investments that power the real economy.
He said, “Monetary policy needs thorough house cleaning. The Central Bank must work towards a unified exchange rate. This will direct funds away from arbitrage into meaningful investment in the plant, equipment and jobs that power the real economy.”
The suspended Governor of the CBN, Godwin Emefiele, introduced a multiple exchange rates regime into the country’s forex market, with different rates adpted by different segments of the economy. They include the Nigerian Autonomous Foreign Exchange Rate Fixing also called I&E forex window, International Air Transport Association rate; Interbank Exchange Rate and Bureaux De Change rate. There is also the autonomous forex rate also called the parallel market rate.
There was a wide gap between the official market rates, which are regulated by the central bank and the parallel market rates, which people exploit to collect arbitrage. This resulted in dollar shortage in the country, as foreign investors refrained from bringing dollars into the country because of the challenge of repatriating their funds.
The CBN also was depleting the country’s external reserves to defend the naira, which investors believed was overvalued.
