CBN should drive floating exchange rate system— Expert

The Managing Director, Citibank Nigeria Limited, Mr Akinsowon Dawodu, has urged the Central Bank of Nigeria (CBN) to allow the country’s exchange rate to be determined by trading in the forex market in contrast to a fixed rate.

Dawodu, who was represented by Citibank’s Head of Strategy, Mr Sharaf Muhammed, gave the advice on Wednesday in Calabar at CBN’s 20th Seminar for Finance Correspondents and Business Editors.

Dawodu presented a paper on the implications of closure of Retail Dutch Auction System (RDAS) and Wholesale Dutch Auction System (WDAS) segment of the Foreign Exchange Market in Nigeria.

He explained that at the moment, Nigeria was practising an Intermediate Exchange Rate regime which was characterised by inconsistency problem and exchange rate volatility.

He said that once the transition had been done, it would eliminate the requirement to hold large reserves, hence free funds for necessary infrastructure development.

Dawodu said that the closure of Retail Dutch Auction System (RDAS) and Wholesale Dutch Auction System (WDAS) by the CBN was also the right step to stabilise the nation’s currency.

“The closure of RDAs and WDAS will unify the market. And when it is unified, the naira will be at good price. So the closure is a good step in the right direction.

“What we need to do now is to gradually move towards the free float system. It is better if the market takes over and determines the price of the currency, and the CBN comes in once in a while to intervene.

“And when our fiscal policy is in harmony with our monetary policy, the economic transformation has been completed and then the FX (Forex) margin can be completely liberalised, ” he said.

Dawodu said that economic transformation and fiscal discipline were prerequisite for Nigeria to be ready for a free floated economy.

He said the progress in economic areas such as Agriculture, Manufacturing, Oil and Gas was a step in the right direction.

Dawodu also recommended that the CBN should reduce intervention in the FX market and be frugal with the use of the nation’s reserve, to further stabilise the economy.

Meanwhile, the Director, Corporate Communications Department, CBN, Mr Ibrahim Muazu, said the seminar aimed at educating the media on the impact of oil crude prices on external reserves and exchange rate management in Nigeria.

“At the end of the seminar, participants would have been exposed to fundamental issues and challenges of oil price volatility on external reserves and exchange rate management in Nigeria.

“The management of CBN believes that as media practitioners, you have great roles to play in disseminating accurate information on financial and economic policy issues.