The Governor, Central Bank of Nigeria, Godwin Emefiele, has said the factors causing the continued fall in the value of the naira are beyond the control of the CBN and the Federal Government.
This, he said, informed part of the reasons the central bank chose to devalue the naira about two weeks ago, rather than continue in the defence of the nation’s currency from the external reserves.
Emefiele, who spoke at the Bankers’ Dinner organised by the Chartered Institute of Bankers of Nigeria in Lagos on Saturday night, disclosed that the bank had spent a huge chunk of the external reserves in defending the naira from falling, adding that the best thing to do is to devalue it.
He said although the decision to devalue the national currency would come with pains, it would lead to benefits in the long run.
The CBN boss stated, “The CBN took the decision that it would be sub-optimal to continue to heavily deplete the country’s reserves in defending the naira. This decision was appropriate because neither the central bank nor the federal government is in control of the major factors causing the depreciation of the nation’s currency.
“In fact, the Russian central bank has abandoned its defence of the currency and allowed the depreciation of the currency, but only after it was said to have spent over $90bn in defending the currency over a couple of months.”
The CBN governor also noted that in recent time, Nigeria had faced a simultaneous dwindling supply of the dollar and rise in demand.
This, he said, had led to a rise in the price of the dollar at both the interbank and Bureau De Change segments of the market.
Speaking further, Emefiele claimed that the underlying factors that led to the dwindling supply of the dollar were mainly global and not country specific.
The factors which he said were beyond the CBN and the government included the fall in the global oil prices, the end of the United States Quantitative Easing programme and the global fall in the price of other export commodities apart from the crude oil.
Moreover, he said the discovery of shale oil by the US had not also helped matters.
All these, Emefiele observed, had constituted low supply of the US dollars amid high demand for them. Click to signup for FREE news updates, latest information and hottest gists everyday
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The devaluation of the naira given the economic situations recently is a move towards the right direction.any country that depends solely on oil revenue such as the case with Nigeria will be facing same situation.devaluation of the naira in principle implies that our export has become cheap relative to our import.cheap prices as explained by economics will trigger increase in effective demand,this will ultimately result to increase revenue but the question is to what extent can this decreased price of our exports help the national economy?given that crude oil accounts for over 80% of the export in Nigeria. Good monetary policy I must say on the part of Central bank but the country still needs a sound fiscal policy,a pattern of government spending that will be monitored for effective result.the present power problem must be addressed. Epileptic power supply still remains the dearth of many infant and small scale industry in Nigeria .until the problem of power is solved companys in Nigeria will be producing at a marginal cost that can never equate to the marginal revenue which is the break even point for any business that has profit maximization motive.paradigm shift from crude oil to agriculture and industry is needed.thumbs up CBN, the federal government must stand up to its obligations of providing enabling conditions for the effective functioning of the market economy and this should be export based.until that is done devaluation of naira will only results to increase in the general price level.
ReplyDeleteThe former Governor of CBN will not have devalued our currency, rather he would have adopted a strategies aimed at discouraging speculation which would have halted the continuous slide in the value of the naira. this decision by the current CBN governor is really bad and woulf further hunt the ailing economy
ReplyDeleteWe must all face the reality of circumstances that led to the devaluation of the naira. The devaluation is long overdue because of the trends on ground in the country. We all know that if there is no adequate control of public spending, the ultimate result is over spending at the expense of the dwindling foreign exchange. My suggestion is that control of foreign exchange must be the sole responsibility of the Central Bank of Nigeria without Federal government direct or indirect intervention. There are great avenues and loopholes that our politicians are releasing foreign exchange without the knowledge of the Central Bank. The activities of money launderers must be recognized within our economy. Foreign exchange meant to be used for productive activities have been diverted to unproductive use by unpatriotic Nigerians. These are the loopholes that must be blocked by the Central Bank and other authorities in order to stabilize the naira. Mr. Emefiele had done the right thing by devaluing the naira. He did the right thing but at a later time. We must keep in mind that the USA has now begun to invest heavily in crude oil prospecting. As a matter of fact, USA no longer purchase crude oil from Nigeria and this has resulted adversely in Naira devaluation. Our exchange rate is based on USA Dollar and the resultant consequence is the devaluation of the naira. In passing, my recommendation is that the average Nigerians must learn to reduce their tastes for foreign goods until the economy stabilizes. Money launderers must reduce their activities substantially and above all, Federal Government spending must be geared on viable economic projections. In all, we all have a stake to play in restoring sanity to the economy, not the Central Bank of Nigeria alone.
ReplyDeleteUntil power supply is made constant local industries can't operate. there is no point stimulating production using devaluation without providing the enabling environment for industries
ReplyDeleteMajor problem in Nigeria is power supply,if their is stable power supply their will be industries and other countries will b willing to invest and manage their business in Nigeria..I don't think is possible we can just stop requesting things we need from those that possess it so far we don't have in our country..let's God bless Nigeria
ReplyDeleteThis is just a simple economic calculation. Devaluation of the naira is not the solution as suggested by the CBN governor, the solution is that they should stop selling dollar to their agents that they call bureau de change, and start making the dollar available more to the banks, and place a rule that banks should make it available to importers and marketers with proofs that they r really using the fund for business, because many of those bank managers also run bureau de change, and would rather sell it to themselves and make more from it in the black market than selling to those who need it for business. Another thing is that many politicians have stacked up a lot of dollars abroad, also our price of oil is down and no much sales, so when there is no much dollar in our foreign reserve, there will be scarcity, and when there is scarcity of a product that has a high demand, the price of the product goes up. Simple!
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