Naira and Dollar

Adebayo Obajemu

Godwin Emefiele, Governor of the Central Bank of Nigeria has  said that the  apex bank will not depart from the path of unification around its Nafex rate.

Recall that the NAFEX rate is the forex window where investors and exporters transact dollars on market-determined prices.

He made this known at an investors conference with the Federal Government of Nigeria by CitiBank. The conference which was held online was titled COVID-19. Economic and Budgetary Update.

Nigeria was represented by the following government officials;

Zainab S. Ahmed – Finance Minister; Godwin Emefiele – CBN Governor; Patience Oniha – DG DMO; Ben Akabueze – DG Budget Office; and a representative of the Hon. Minister of Health, Dr Osagie Ehanire.

According to Emefiele, “We will continue to pursue unification around the NAFEX Market”. The CBN Governor also mentioned that as at December 2019 Nigeria saw a “relatively stable market because the NAFEX rate and rate that the Central Bank does transaction outside the NAFEX was close to themselves.” And that “at some point, the NAFEX rate me below the Central Bank rate”

Recall that there was a hint as reported by the dailies last week that the government was considering a unification of the exchange rate and could unify the rate around the NAFEX (I&E) window rate or the official CBN rate of N360/$1.

The latest comment from the CBN Governor suggests they might be unifying along the lines of NAFEX.

The apex bank governor also talked about the disparity between the parallel market and the NAFEX rate claiming it is a market for people who are “doing dealings that are not recognized by authorities”

In his words,  ”The CBN has always maintained that the black market is not a good determinant of the value of the naira. You’ll find that people who are in a hurry and do not want to procure the kind of documentation required, will sometimes rush to those markets. But we have used the period of this pandemic to prove that anybody dealing in that market is dealing in an illegal business.”

He also claimed that the COVID-19 pandemic has buttressed claims from the bank that most of the pent-up demand was not realistic. He cited the impact of the global lockdown on flights as a clear example. “These airlines are not flying and sometimes you find dollars being sold through the BDC’s into that market just to be seen that we are doing everything possible to moderate the rate,”Emefiele said.

He said that because “airlines are not flying, and people are not traveling so there should therefore not be any demand for forex exchange in that market”.

Insisting that the trades in the black market are counterintuitive he went further to accuse those trading in the black market as those dealing in corrupt practices. “It could only be those who are dealing in what is simply called corrupt practices that will be dealing in that market and we are not about to talk about unification of our exchange rate around people who are dealing illegally,” Emefiele added.

He also claimed anyone who was willing to deal in forex should utilize the “recognized” NAFEX market which is why “unification will have to be around the NAFEX”

The Federal Government disclosed plans to unify the exchange rate in order to generate more revenue and manage the rate in a sustainable manner. The IMF had previously pointed out that unifying the exchange rate will impact the economy more positively than the multiple exchange rates, which creates a lot of opportunities for arbitrage. The unification also curtails situations where public and private sector decisions are distorted as a result of uncertainties.

The CBN Governor also fielded some questions about lack of liquidity in the NAFEX window which averages between $4-60 million daily.

Responding he said that “the external reserve still remains about 36 sic ($36 billion) and will imagine it is enough to make somebody do business in Nigeria.