NEWS ANALYSIS: Can Naira exchange for N200 to $1 again?
By Oyedeji Kayode
I doubt if that is possible.
Exchange rate cannot be fixed by fiat as Buhari tried to do and wrecked the economy.
It is basically a function of demand and supply and there is never a quick fix. It is easy for a currency to crash but extremely difficult to make it rise.
The process of building in value into a currency is difficult. You must have effective fiscal policies to boost productivity – the fundamentals of the economy and solid monetary system to manage the technical aspect of it. You may also decide to deliberate devalue to boost export if and only if you have the capacity and efficiency to produce and compete globally.
What the incoming President can do immediately is to identify hidden or inherent strength, value, potentials that have yet to reflect in the Naira. The first in this is to streamline the foreign exchange system into one exchange rate that all operators and investors can relate with and can form the basis of their planning and decision making. The other is to re-organise our entire foreign trade in such a way that almost all of our transactions, including disporan remittances, items that are presently being smuggled into the Country, are brought under the regulatory system.
In other words, he must make deliberate effort to shrink the black market, if possible “destroy it”. The challenge here is the fear that the CBN may not be able to provide adequate FOREX. This is a false assumption that gained acceptability under Buhari when oil price fell considerably. They forgot that there are other ways to cushion the effects of oil price drop.
Once he is able to bring almost all transactions, except those on trade prohibition lists, inflow and outflow, under the regulatory system, the true or fair value of the Naira will emerge. It may be higher or lower than the current rate in the immediate. But if both the inflow and outflow are adequately captured, the likelihood that Naira will get better and stronger is higher as massive speculative tendencies and hoarding of or savings in Dollars will reduce to the barest minimum.
The medium and long term will reflect improvement in production and foreign investment flow as well as improved efficiency in the economy if we are able to achieve that.
These are fiscal issues that he must work hard to achieve. He has to open up the economy, boost competition, atracknforeign equity and portfolios, creative derivatives to fund infrastructure and encourage credit growth and access ….. allow investors to have confidence in the economy.
