Nigerian Vice President Says Current Naira Exchange Rate ‘Artificially Low’

Nigerian Vice President Yemi Osinbajo ProfOsinbajo cautioned that the country’s actual naira exchange rate (conversion standard) of N411 for each dollar is falsely low. This swapping scale, as per Osinbajo, discourages foreign exchange entrance into the country. Coins in circulation in Nigeria are ₦2, ₦1 and 50 kobos. The kobo is the subunit of the Naira, with 100 kobos in one Naira. In addition, you can also exchange your current Nigerian Naira banknotes, as well as older withdrawn Nigerian Naira banknotes. However, Nigeria’s Central Bank barred local banks from working with cryptocurrencies in February, warning of “severe regulatory sanctions” and freezing accounts of firms. 

Nigerian Vice President Says Current Naira Exchange Rate 'Artificially Low'
Nigerian Vice President Says Current Naira Exchange Rate ‘Artificially Low’

In February, the government got scared and banned cryptocurrency transactions through licensed banks. Then, in late July, a pilot scheme for a new government-controlled digital currency, hoping to reduce incentives for those wishing to use unregulated cryptocurrencies, was announced.

Vice-President Yemi Osinbajo called on Monday for an official rate that portrays the market reality and said the current dual exchanges l rates allowed for arbitrage (a strategic move in which investors buy a cryptocurrency on one exchange and then quickly sell it on another exchange for a higher price) and clogged inflow.

He said these organizations in Abuja at the opening of a two-day Mid-Term Ministerial Performance Review Retreat organized to assess progress made towards achieving the nine critical priorities of the Buhari regime.  However, experts feel differently about this matter. A professor of capital market at the Nasarawa State University Keffi, Uche Uwaleke, said, the ramifications of degrading naira now were quite scary and alarming.

He said, “The first casualty will be the 2022 Appropriation Bill. It means the 2022 budget, which is predicated on N410.15 per dollar, is dead on arrival.”

Subsequently, Vice President Osinbajo says he needs the Central Bank of Nigeria (CBN) to permit the Naira to “reflect the realities of the market (mirror the real factors of the market).”  He clarified,

We can’t get new dollars into the system, where the exchange rate is artificially low. And everyone knows by how much our reserves can grow. I’m convinced that the demand management strategy currently being adopted by the CBN needs a rethink, and that is just my view.”

Osinbajo noted that the CBN is competing with the fiscal side of the economy, which incorporates the services, offices-departments and organizations of government.

Naira Depreciation

Osinbajo has recently stated that the official naira exchange rate of N411 per dollar is artificially low, which discourages the entry of foreign exchange into the country.

He expects the Central Bank of Nigeria to allow the Naira to reflect the realities of the market.

According to The Report by Cable, Osinbajo also wants the CBN to reconsider its foreign exchange management policy. While Speaking at the midterm retreat of President Muhammadu Buhari’s second tenure, he stated that:

As for the exchange rate, I think we need to move our rates to be as reflective of the market as possible. This, in my respective view, is the only way to improve supply. We can’t get new dollars into the system, where the exchange rate is artificially low. And everyone knows by how much our reserves can grow. I’m convinced that the demand management strategy currently being adopted by the CBN needs a rethink, and that is just my view. ” Anyway, all those are issues that when the CBN governor has time to address, he will be able to handle in full.

The price of the Naira has been steadily declining against mainstream fiat currencies such as the US Dollar and British Pound since 2020. At present, the Naira to US dollar conversion rate is more than 410 for every dollar. This rate is approximately 40% less than the parallel market rate.

Meanwhile, Experts like Uchenna Joseph Uwaleke who is an Associate Professor of Accounting & Finance at Nasarawa State University, Keffi has stated that: the devaluation of the Naira will worsen poverty and unemployment in Nigeria in reaction to Osinbajo’s comment. Although the price discrepancies between Naira’s official and black market exchange rates, the CBN has declined to devalue the currency, CNB has started targeting individuals and corporations suspected of driving the Naira’s decline. Osinbajo has also warned CBN against meddling with the fiscal part of the economy.

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