It has been observed that for Nigeria to attempt a unification of exchange rates, it must address the fundamental issue of foreign exchange availability and any attempt to unify the rates at this time will spell doom for the economy.

That was the consensus of opinion of analysts, who spoke to Daily Independent at the weekend in their reactions to the call by President Bola Ahmed Tinubu for the unification of exchange rates in the foreign exchange market.

They argued that it is only when fundamentals of the economy like improved productivity, increased exportation, growth in external reserves, improved foreign exchange earnings through the non-oil sector and end to importation of petroleum products are pursued and attained that the country may be positioned to unify exchange rates.

They told President Tinubu that any attempt to unify exchange rates in the country will crash the economy if these fundamental issues were not addressed.

In a significant policy shift, President Tinubu in his inaugural speech, declared his government’s decision to unify the exchange rates, replacing the previous multiple exchange rates regime implemented during the administration of former President Muhammadu Buhari by the Central Bank of Nigeria (CBN).

He highlighted the importance of a unified exchange rate and emphasised the need to redirect funds from arbitrage toward meaningful investments.

Additionally, he called for a reduction in interest rates, describing the current rates as detrimental to both the people and businesses in Nigeria.

He said, “The central bank must work towards a unified exchange rate…they should direct the fund from arbitrage to meaningful investment.

“Interest rates need to come down, currently too high, anti-people, anti-business, we have to work on all of those”.

While addressing governors of APC, the president also said, “If we work together, the Nigeria of our dreams is not far away. Rest assured that we will not have multiple exchange rates anymore. The multiple exchange rates will be streamlined”.

Significantly, the unification of exchange rates involves the unification of exchange regulations and trading arrangements so that the new exchange rate regime is supported by an efficient and uniform regulatory and operational framework of exchange markets.

It also modifies the entire structure of relative prices between traded goods by eliminating the implicit set of taxes and subsidies that a multiple exchange rate system produces.

In a blog post, the President of the World Bank Group, David Malpass, warned that Nigeria’s parallel exchange rate is harmful as it worsens future debt service payments and increases the risk of debt distress.

According to Malpass, about 24 emerging and developing economies, including Nigeria, have an active parallel currency market.

He added that “in at least 14 of them, the exchange rate premium —the difference between the official and the parallel rate — is a material problem, exceeding 10 percent.”

In the blog post, it was disclosed that Nigeria has an exchange rate premium of 61.7 percent as of March 2023.

The World Bank chief noted that parallel exchange rates are expensive and can drive corruption.

Analysts, who spoke with our reporter, said President Tinubu’s decision to unify the exchange rate reflects a departure from the multiple exchange rate system that was in place during the previous administration.

In his reaction, Dr. Ayo Teriba, CEO of Economic Associates, applauded the president’s desire for a unified exchange rate regime.

He said, “I think there is a national consensus that subsidy of any type, subsidy in fuel price, exchange rate are market distortions. Having multiple exchange rates is a distortion. The market reality is closer to the Bureau de Change rate which is what common Nigerians will face if they want to change their currency.

“The CBN rate is only available to the privileged. It is a subsidy to the privileged and it is not fair. The exchange rates should be unified just like the fuel subsidy has been removed.

“I agreed with the president that we need to unify the rates, how and when we can debate but there should be a single exchange rate is sensible and undebatable. It is a leakage of our government resources. We are losing revenue by selling forex to some people at subsidised rates and they turn around to sell it in the market. We cannot continue to allow this arbitrage. It is part of corruption and it is an abuse. We should put an end to it”.

Dr. Boniface Chizea, Chief Executive Officer of BIC Consultancy Services, said unifying exchange rates is the right thing to do but certain things must be put in place before this is done.

“What led to the rates was that you cannot meet the supply on the official window. Once you don’t have enough foreign exchange to meet the demand of the people, the people seek demand elsewhere, and then the rate will be different.

“Either you do that or you can then allow it to float. If we float, the naira will crash badly.

“It is good to talk. Nobody will love two prices for one commodity. By doing this you create an arbitrage opportunity. Those who get dollars at the official rate sell on the black market and they make more money without any added value.

“Fundamentally, we are not producing. And if we are not producing, we won’t have enough forex to cater to the demand of the people.

“Government and the CBN cannot just come and say we should unify the rates when we have supply shortfall. It can never harmonise.

“We have to address the fundamentals of the economy which is productivity, exports, grow your reserves and earn foreign exchange, stop importing petroleum products”, he said.

Stephen Iloba, an economist, said the multiple exchange rate regime often led to disparities and inefficiencies, creating opportunities for arbitrage and hindering the growth of the economy.

He said, “By implementing a unified exchange rate, President Tinubu aims to streamline the foreign exchange market and reduce distortions, thereby attracting more investments and boosting economic stability.

“The unification of the exchange rate is expected to enhance transparency and create a level playing field for businesses operating in Nigeria. It will simplify transactions, eliminate complexities associated with multiple exchange rates, and provide a more accurate reflection of the true value of the Nigerian currency, the naira.

“This move is likely to improve investor confidence, attract foreign direct investment, and promote economic growth in the long term”.

Cyril Ampka, an Abuja-based economic analyst, said the president’s call for the unification of exchange rates is an undue interference with the constitutional right of the central bank.

He said, “Historically, central banks have been granted a significant degree of autonomy to execute monetary policies without undue interference from the government.

“However, with the unification of the exchange rate, the CBN’s role in managing the country’s currency valuation may undergo a shift.

“As the government takes a more active role in determining and directing exchange rate policy, concerns may arise regarding the independence of the CBN and its ability to make impartial decisions based on economic considerations.

“Implementing these reforms will require careful planning, coordination, and engagement with relevant stakeholders, including the Central Bank of Nigeria and the financial sector.

“The success of these policies will also depend on addressing underlying challenges such as inflation, fiscal discipline, and structural reforms”. (Text, excludes headline: Daily Independent)

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