Economist, Bismark Rewane, has backed the Central Bank of Nigeria’s (CBN) foreign exchange policies, stating that supporting an undervalued currency is necessary.
Mr. Rewane made this remark following his comments on Channels TV, where he noted that the Nigerian government had spent about $8 billion to support the naira against the dollar.
Speaking on Arise TV, he clarified his statements, while also criticizing social media commentators who, in his view, had misinterpreted his remarks due to ignorance.
He emphasized that currency defense is a core mandate of the apex bank and that supporting the naira when it is perceived to be undervalued is a sound economic decision.
- According to him, defending an overvalued currency would be a poor policy choice. He also cited examples of countries that have defended their currencies in similar circumstances.
- Rewane stated that the naira is undervalued by about 26.35%, making it logical for the CBN to intervene to correct the market misalignment.
- He further commended the CBN’s foreign exchange policies, stating that its efforts to stabilize the naira have been effective.
What Rewane is saying
On the fair value of the naira
“Using a Purchasing Power Parity (PPP) analysis, the fair value of the naira is ₦1,102.15 per dollar. Currently, the naira is 26.35% undervalued.
This distinction is important:
- If you intervene to protect an overvalued currency, you create artificial demand, which is bad policy.
- If you intervene to support an undervalued currency, you are correcting a market misalignment.
The CBN’s recent actions align with the latter. The naira had been significantly misaligned, and by taking deliberate measures to stabilize it, the CBN is addressing that problem.”
On steps the CBN has taken to stabilize the naira
“Previously, Nigeria operated a multi-tiered exchange rate system, with different market segments functioning independently. This created a price-discriminating monopoly, where the CBN sold forex at one rate while some entities resold it at a different rate.
In a bid to liberalize and increase transparency, the CBN has taken steps to ensure:
- A unified exchange rate system
- Clearer pricing mechanisms
- Reduced speculation and arbitrage activities
These efforts have brought a degree of stability to the market.”
On how we got here
“To understand what’s happening today, we need to reflect on this time last year.
- In early 2023, the CBN raised interest rates by 400 basis points, marking its first significant intervention in years.
- This led to a sharp appreciation of the naira, which briefly strengthened to ₦1,009/$1 before rising to ₦1,200/$1 due to market distortions.
However, the CBN did not implement a structured intervention plan. Instead, it conducted a single forex auction worth $1.8 billion, without a clear follow-up strategy.
This time, however, the CBN has taken a more systematic approach to intervention.”
On the CBN’s utilization of forex
“Let’s examine foreign exchange inflows during this period:
- Foreign portfolio investors: $10 billion (30% of total)
- Export earnings: $8.25 billion
- CBN inflows: $3.7 billion
- Corporate inflows: $9.7 billion
Total: $31 billion
How was this money used?
- Settling foreign portfolio inflows: $5.5 billion
- Import payments: $12.8 billion
- CBN outflows for obligations: $2.4 billion
- Corporate outflows: $9.1 billion
Additionally, the CBN cleared outstanding airline IATA funds and settled forex forwards.
The key takeaway is that these interventions were structured and aimed at restoring confidence in the forex market.”
On drawing parallels with 2024
“Looking at the exchange rate trajectory in 2024, we see a familiar pattern:
- The naira depreciated sharply, dropping to about ₦1,625/$1.
- It then recovered to around ₦1,125/$1 before adjusting again to ₦1,505/$1.
For investors, stability is more critical than absolute value. A stable exchange rate fosters business confidence and investor trust.”
On comparing Nigeria with other countries that have defended their currencies
“Margaret Thatcher’s government once spent $27 billion trying to defend the British pound. However, George Soros aggressively shorted the currency, making $10 billion in profit and forcing the Bank of England to abandon its defense.
A similar situation occurred in Malaysia under Prime Minister Mahathir Mohamad, when Soros attacked the Malaysian currency. Although Mahathir resisted, the currency continued to depreciate.
China, between 2015 and 2016, spent $1.02 trillion to stabilize its currency.
Russia, during the 2014-2015 crisis, used $80 billion for the same purpose.
Switzerland, between 2011 and 2015, spent $480 billion defending the Swiss franc.
Japan, in recent years, has intervened with $135 billion to support the yen.
In comparison, Nigeria’s $8 billion intervention is relatively small. The key difference is that Nigeria is supporting an undervalued currency, not an overvalued one. Historically, countries defending overvalued currencies suffered speculative attacks that exposed their weaknesses. However, Nigeria’s intervention is necessary because the naira is trading below its fair value.”
On why it is the CBN’s mandate to defend the naira
“It is the CBN’s primary mandate to defend, support, and stabilize the naira. That is exactly what they are doing. Misrepresenting this policy would be unfair to both the government’s objectives and the commendable efforts of the central bank.
The title of our last presentation was “The Central Bank’s Resolute Stance.” You only use the word ‘resolute’ for a good cause, not a bad one.
The CBN has stood firm and has not rushed into lowering interest rates. As Governor Cardoso rightly pointed out:
“A data point is not a trend.”
I appreciate the opportunity to clarify misconceptions and provide perspective on these policies. The evidence shows that the CBN’s strategy is working, and its actions should be supported.”
On social media speculation and misinformation
“Recently, there has been a wave of misinformation on social media about the naira and the CBN’s policies. Much of this stems from ignorance, but some are deliberate misrepresentations by influencers and commentators who misunderstand market dynamics.
Unfortunately, economic policy is often viewed through a political lens, making rational discussions difficult. But as James Carville famously said:
“It’s the economy, stupid.”
At the end of the day, what matters is whether these policies are working.”
On whether the CBN’s policies are working
“In our humble opinion, the policies are working. The CBN has taken structured steps to address forex market distortions, restore investor confidence, and stabilize the naira.
While challenges remain, it is important to evaluate economic policies based on data and market fundamentals rather than speculation and political noise.”
Why this matters
Rewane’s comments have sparked a social media firestorm, with both government supporters and opposition figures seizing on his remarks to push their narratives.
What was meant to be an economic analysis quickly turned into a political battleground, with accusations, misinterpretations, and selective soundbites dominating the conversation.
