Nigeria’s MPC members hold divergent views on forex management

Members of the Nigeria's Monetary Policy Committee (MPC) at their last meeting in July expressed divergent views on the present foreign exchange management policy adopted by the central bank to tackle currency shortage, curb speculations and conserve forex reserves. Members largely seek more flexible approach to forex management to avoid unintended consequences on the economy. 

“My primary concern about the central bank’s administrative measures relates to their potential for rapidly degenerating into “cures” that end up being worse for the “patient” (i.e. the domestic economy) than the disease.

Nigerian naira and dollar currencies

“Which is to say that I remain largely unconvinced by arguments insisting that demand management measures being unveiled will not do the economy, and its prospects, more harm than good,” Adedoyin Salami said at the last MPC meeting.
He also warned on the implications of the forex management policy adopted by the central bank on banks non-performing loans portfolios.
“Although motivated by its Exchange Rate stability objective, CBN exchange rate policy, and associated measures aimed at restraining foreign currency demand, will likely also lead to continuing increases in NPL’s. There are significant currency and duration mismatches on Nigerian bank balance sheets, as well as on corporate balances, large and small.”
On His part, Abdul-Ganiyu Garba said unless an allocative mechanism that restores credibility, liquidity and confidence in the foreign exchange management is designed and operationalized, the opportunities for arbitrage and currency depreciation are more likely to persist and so would be the demand and related pressures.
“The idea of funding bureau de change to narrow spreads has not been successful: spread has widened creating opportunities for arbitrage and short positions that self-fulfills depreciation,”
Suleiman Barau said it would not be right to use the exchange rate at the BDC to mirror the real effective exchange rate, this he noted could be misleading as well as heavily penalize industries whose products are critical to the growth of the Gross Domestic Product (GDP).
“I have never supported the shifts from WDAS to RDAS because there is sufficient evidence from credible researches to the effect that forex spreads tend to widen in RDAS regimes than in WDAS regimes because of the restrictions in RDAS and institutional weaknesses,”