CBN deepens Nigeria’s FX crisis – World Bank

CBN deepens Nigeria’s FX crisis – World Bank

The Central Bank of Nigeria has been faulted for the foreign exchange crisis bedeviling the Nigeria’s economy in a recent statement by the World Bank.

Following its bi-annual Development update, according to the World Bank, the Central Bank’s management of the exchange rate drastically reduced supply in the market this in turn affected investors’ confidence which redirects attention to the parallel market.

World Bank statement reads; “The way the exchange rate was managed limited access to FX and thus adversely affected investors’ confidence and investment appetite.”

There’s has been a wide gap that resulted in widening the parallel market to as high as N90 given to combination of speculation, demand and fear of the future devaluation of the currency.

The statement continues “Significant spreads between the official, the IEFX, and the parallel exchange rate persisted throughout 2020 as of April 2021, the spread between the official and the IEFX rate was estimated at 8% and between the IEFX and the parallel rate, reached 18%.”

The Central Bank made a step recently to unify the exchange rate having dumped it age long official rate for the IEFX rate published by the FMDQOTC.

Consequently, it took to cash4dollar scheme in March hoping for a drive in diaspora inflow/remittance.

World Bank hinted that the Central Bank did not go all in with its change in policies.

Thus said, ”In May 2021, the CBN formally took concrete steps towards rates unification between the official and IEFX rates. However, the IEFX rate continues to be managed and is not fully reflective of market forces.

Furthermore, there remains a 205 premium between this unified rate and the parallel market rate. The two months naira-for-dollar scheme introduced by the CBN in March 2021 to serve as an incentive for increased remittance inflows through former channels was extended indefinitely in May and was preceded by regulatory directives in December 2020 that mandated all licensed operators to pay remittances in dollars.

While this may indeed encourage the use of formal channels, it’s not clear that incentive payments will increase remittances to the country.”

There were recommendations by World Bank on what the Central Bank should do to address the concerns of forex shortage, and exchange rate gap. It called on CBN to allow the IEFX market to function as it should by allowing a more market-friendly approach for exchange rate transaction.

Rather than allow an unrealistic way of reporting the exchange rate prices, a two way quotes was advised which allows banks to quote for their bid and offer prices as seen in the stock market.

Oil companies should as well help in FX supplies, this can only be achieved if the market becomes evenly transparent and flexible.

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