Organic convergence way forward for Exchange rates says CBN
by Hope Moses-Ashike
October 29, 2017 | 9:46 pm| | | Start Conversation
The Central Bank of Nigeria (CBN) at the weekend said the way forward for foreign exchange is organic organic convergence.
Joseph Nnanna, deputy governor, financial system stability, who said this in Lagos at the Chartered Institute of Bankers of Nigeria (CIBN), also disclosed that externall reserves have risen to $34 billion.
Within four months the Investor and Exporters (I & E) forex window was introduced, he said Nigeria has recorded over $10billion of volume of transaction.
“Take it from me; the exchange rate will not go up. we have achieved stability and the stability is here to stay. The sustainability of the naira is already evident. The reserve is growing. As of today, it is $34 billion. When we were still experiencing exchange rate volatility, the reserve was as low as $20billion”, Nnanna said.
He highlighted that Nigeria can make do with even $20 billion reserves, adding that
all it needs to manage the economy properly is a reserve that can cover at least three months of import. “As a matter of fact, $12 billion in the reserve can give us coverage for about 4 months”.
Nnanna said the inorganic convergence which is forced will always produce an arbitrage, “and that is exactly what we do not want. Previously, the exchange rate was as high as N500/$. Today, this rate has decline as result of the combination of heterodox policies. We did not force the exchange rate to decrease. It came down organically/naturally, which is the appropriate way”.
Speaking to journalists immediately after the investiture, Segun Ajibola, president CIBN, said flexible exchange rate is helpful in an environment where there are no hiccups in the foreign exchange management and policy generation.
“There is almost no economy in the world that has their foreign exchange market succumbing completely to the forces of demand and supply. The best we have seen is a managed float system which is what the CBN introduced February this year. But as the economy stabilises, and diversifies and foreign exchange earnings increase especially the non-oil exports, then the exchange rate can tend towards a flexible one”, Ajibola said.
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