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Creative and innovative policies help to drive economic growth and development. Crises spur critical thinking and creativity whereby new and useful ideas and policies are developed for the overall success of organizations and economies.
The Central Bank of Nigeria (CBN) recently introduced the ‘’naira- 4-dollar’’ policy as a part measure in response to dollar scarcity which some analysts have attributed to various factors ranging from the Covid-19 pandemic to drop in oil price, speculative activities, high import bills and others.
It will be recalled that a similar but more serious situation prevailed in 2017 which plunged the naira to a drastic low. From around N190/$1 IN May 2015, the naira depreciated to N560/$1 in mid February 2017. CBN Governor, Godwin Emefiele identified the underlying causes to include those holding illegal monies, people desperate to transfer illicit gains out of the country at any cost and acts of sabotage by speculators who exploit the weakness of currencies and create a destabilizing impact.
It was in response to the development that CBN established the Investors’ and Exporters’ (I&E) Window. The impact was magical. It boosted aggregate Forex inflow by 45 per cent to $91 billion in 2017 compared to $62.75 billion in 2016. The inflow through CBN was $42.17 billion which accounted for 46.30 per cent. Autonomous sources accounted for $48.33 billion or 53.70 per cent. Overall net inflow stood at $57.32 billion against $37.19 billion in 2016. CBN’s net inflow was $11.62 billion compared to a net outflow of $2.10 billion in 2016.
Another notable CBN policy aimed at generating energetic inflows is the currency swap deal introduced in 2018 to help fix the liquidity challenges faced by Nigerian traders and Chinese manufacturers seeking to buy raw materials from Nigeria. The deal also protects Nigerian business people from the harsh effect of third currency fluctuation. The Lagos Chamber of Commerce and Industry (LCCI) applauded the policy and noted that it would impact on trade positively between Nigeria and China because it would make payment easier.
The new ‘’naira -4-dollar’’ policy is expected to have a positive impact because it was evolved to ensure that formal banking channels offer cheaper, faster and more convenient ways for remitters to send funds to beneficiaries. The policy offers a rebate of N5 for every $1 of fund remitted to Nigeria through International Money Transfer Organizations. The rebate would be provided to the bank accounts of beneficiaries following receipt of remittance inflows.
The policy also aims at stabilizing the exchange rate and support accretion to foreign reserves. In a media report, the Managing Director/Regional Executive, Ecobank Nigeria Limited, Mr Patrick Akinwuntan noted that the ‘’naira-4-dollar’’ policy would ‘’improve currency inflows and the reserve position, stabilize the economy and stimulate production.’’
CBN Governor also noted that the cost reduction in sending remittances was a major way to boost remittance inflows. And that the Bank’s forex initiatives had led to improved remittances from a weekly average of about $5 million to over $30 million per week. World Bank noted in 2019 that Nigeria was the 7th largest recipient of remittances which stood at $21 billion behind India, China and Egypt. And PwC had projected that Nigeria’s remittance flows could reach $34 billion in 2023.
The global forex market is the world’s biggest financial market trading about $1.5 trillion per day. Forex is the backbone of international trade. It is also a determinant of critical economic parameters such as the price we pay, interest rate on our loans and rate of return on investment.
Dollar is the currency of choice in international trade and accounts for the bulk of global reserves held by central banks. Foreign reserves are back up funds which are held as bank notes, bonds, deposits, Treasury bills and government securities. They are held for liabilities, an emergency such as a rapid devaluation of a currency and used to influence monetary policies.
According to Emefiele, ‘’our external reserves currently stand above $35 billion and are sufficient to cover 7-months of import of goods and services.’’
- Nwobu, a Chartered Stockbroker and Business Journalist wrote via arizenwobu@yahoo.com.Tel; 08033021230
