As the Naira continues to devalue, a former Deputy Governor of the Central Bank of Nigeria, Prof Kingsley Moghalu has said the value of the naira is shaped by productivity and the competitive state of the economy.
He spoke on the backdrop of a further dip in the value of the naira, crashing to a new low of N570/$ in the parallel market.
At the official market, the naira exchange rate has been severally adjusted to N305/$, N360/$, N379/$ and now $410.57/$ in the I&E window.
He disclosed that currency speculators make a very good fortune from weakened currency. “Such traders “attack” currencies for profit, especially where the currency is using fixed, official exchange rate determined by the central bank instead of the market,” he said.
“If reserves are weak, and demand for dollars massively outstrips supply, currency devaluation is inevitable. Currency speculators borrow the naira from Nigerian banks, convert it to, say, dollars, then buy short-interest paying Nigerian bonds,” he added.
Moghalu advised the CBN to stop subsidising the naira. For him, although such a step will lead to an immediate spike in the price of the dollar, over time, the laws of demand and supply will work in favour of the naira. “Alongside this, maintaining different exchange rates for different kinds of transactions must end. This is called rate convergence. Since the current practice of the CBN pumping dollars in the forex market is essentially a subsidy for imports, which has made Nigeria more and more import-dependent, letting go of the subsidy on the naira will refocus the economy towards exports,” he said.
