OPS Backs CBN on Exchange Rates’ Unification

The Organised Private Sector (OPS) has commended the recent step by the Central Bank of Nigeria (CBN) towards unifying the exchange rate by adjusting the rate at the official Secondary Market Intervention Sales (SMIS) to $380/$1 from $360/$1.

OPS said the development would allow the exchange rate to reflect the market fundamentals and avoid distortions in the economy.

The Lagos Chamber of Commerce and Industry (LCCI), the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) and Nigeria Employers’ Consultative Association (NECA) hailed the adjustment, describing it as a positive development.

The Director-General of the (LCCI), Dr. Muda Yusuf, described the unification of the rates as an important move to stem the looming liquidity crisis in the foreign exchange market.

Yusuf stated that multiple exchange rates were a major source of distortion in the foreign exchange market as the system complicated the management of the foreign exchange market and perpetuated a rent economy that created opportunities for arbitrage, which engendered resource misallocation.

He added that the recent adjustment of the SMIS rate from N360 to N380 is consistent with the objective of exchange rate unification, elimination of multiple rates in the foreign exchange market and the proposition in the Economic Sustainability Plan of the federal government.

“It is imperative for the exchange rate to reflect the market fundamentals in order to ensure sustainability and promote efficiency in allocation mechanism. This is also critical for investors’ confidence. This should, however, be complemented with appropriate trade policy regime, fiscal policy measures and institutional strengthening to achieve the objective of heightening self-reliance and economic diversification,” Yusuf said.

He added that the disadvantages of the multiple exchange rate system are the impediments it posed “to the attraction of investment as well as inhibiting the inflow of foreign exchange and creation of transparency issues in the allocation of foreign exchange.”

Yusuf's counterpart in NACCIMA, Mr. Ayo Olukanni, said the adjustment, to attain convergence at the foreign exchange market was a step in the right direction.

According to him, NACCIMA has always championed the merger of exchange rates in order to ensure predictability and proper planning in the economy.

“But the adjustment at this period will likely lead to inflation since private sector operators will most likely pass on the additional cost of sourcing foreign exchange to consumers. Therefore, steps should be taken to ensure stability in the foreign exchange regime to avoid unnecessary and continuous changes,” he stated.

Similarly, NECA viewed the exchange rate adjustment as a welcome development.

A press statement by the Director-General of NECA, Dr. Timothy Olawale, agreed with the adjustment but stated that the timing left much to be desired.

Olawale said: “We are aware of the positive impact of unifying the exchange rate, as we are in full support of shunning multiple currency practices, which we believe have not demonstrated the true reflection of the naira in the market. Nevertheless, we are wary of the implication of the sudden unification of the exchange rate to the economy at this time. We believe this will be counterproductive, as the nation depends hugely on the importation of raw materials, equipment, fuels (most especially). We are sure this will imply a higher cost of all imported products, with increased potential for reintroduction of the subsidy regime.”