Emefiele Has Finally Explained Why He Doesn’t Support A Free Float Of The Naira


Nairametrics| The Central Bank of Nigeria’s Governor, Godwin Emefiele, has been under immense pressure for several months by both local and international analysts to allow the free float of the Naira, as these economists believe that it is the only way to re-attract foreign investment into the country and spike investor confidence. However, Emefiele has stood firm against the free float of the Naira.

Speaking at the  Vanguard Newspaper Awards, where he was recognised as the “Personality of the Year,” in Lagos, Emefiele gave 5 excuses why he has not allowed the free float to happen.

  1. A false image of the Naira’s real value

Emefiele’s first excuse hinged was that the rate disparity between the interbank and parallel market exchange rates was not a good measure of the value of the Naira and suggested a purchasing power parity analysis would confirm same. Rather, he believes the disparity was due to what he called “a lot of illegal and criminal activities being carried out there”, the Naira is experiencing under-valuation. Under a free float, these ‘illegal and criminal activities’ would destroy the currency, something he said the CBN would not allow.

  1. Nobody else does a free float…

Another excuse that Emefiele gave was that a free float was not a policy common in other countries. In fact, apart from Egypt, he dared proponents of the free float theory to name any other country that practices a freely floating exchange rate regime.

  1. …and for good reason

According to Emefiele, the current situation Egypt finds itself is the exact reason why other countries, and especially Nigeria, do not consider a free float. “What they do not tell you is that following their currency adjustments; inflation today in Egypt is over 30 percent. Is that what we want in Nigeria?” ThisDay quotes Emefiele as saying.

  1. The CBN is already on top of the matter

According to the CBN boss, the apex bank had sat down to understand the peculiar problems leading to the surge in inflation and understand that it is a cost-push inflation- where supply constraints lead to few goods in marketplace- that is responsible for the high inflation. However, the bank has moved to correct this. “In Nigeria, I believe we have cost- push inflation, exacerbated by supply shortages in food, fuels, and FX. And that is why the CBN is supporting farmers across the country through various schemes to increase food supply. We are also very responsive to the needs of fuel importers to ensure availability. And we continue to respond as much as possible to FX supply shortages in the market.” he said.

  1. What is being done already worked in other countries and in Nigeria too

Citing South Korea during its economic resurgence and cement as a local example, Emefiele justified the steps taken by his administration, such as the exclusion of certain items from the forex market. According to him, this would serve to conserve forex on one hand, and boost local production on the other. “…here at home, this policy have been used to achieve significant sufficiency in cement, a product whose importation could have been costing us over US$3.2 billion in FX Reserves annually… why should we keep allocating scarce FX to rice importers when vast amounts of paddy rice of comparable quality produced by poor hardworking local farmers across the rice belts of Nigeria are wasted, and farmers are falling deeper into poverty while we export their jobs and income to rice producing nations.” Emefiele opined.

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Chacha Wabara

Chacha Wabara is a legal practitioner, blogger and fitness coach. She has over 5 years experience in blogging and freelance writing. She has written several articles and research work over the years as a freelance contributor. She joins Nairametrics as Our News and Analysis Lead.

What others say about : Emefiele Has Finally Explained Why He Doesn’t Support A Free Float Of The Naira..


anodebenze

Godwin, my main man stubborn like a bull,constant like the northern star,unmoved,faced criticism from all round,at worse he tells his critics.my way or you shove it,personally I think the Governor is doing his best,this recession exposes the defect in Nigeria economy.once business returns with 2 yrs fully,people will love him more,and he will tells Nigerians I told you so but some will say, why some criticism including moi sometimes,but my criticism is not based on what some think,i am reaching out for the governor to do some measures/over-reaching factors to pull the rug under the feet of his enemy,,but i am more relaxed,because I have read baba obasanjo and usman (the former minister of finance under baba) in kaduna statement that this present govt should pursue synergy with the private sector, and also the discussion which the office of the vice-president have been doing.
Look at the funds created by the cbn for power generation and micro-industry,which have not be utilized,maybe govt will give condition for some company with allied or similar link to energy,mines,petroluem.e.g if you wants to import oil or lift oil,you must enter an aggrement or invests in power generation.if you do not want to do it,you should go back to your tent
Floating of the naira will kill the naira, on what analysis is the floating of the naira ?.is it the balance of trade(deficit or surplus of it ) ?I think it’s the supply of forex,that is the problem but the scarcity of forex in Nigeria,can be handled by creating an artificial surplus of forex in Nigeria,and I think they will do it in future,once this budget is passed,and will give the govt freedom,to reviews the economy by mid-year.

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