Bismarck Rewane, chief executive officer (CEO) of Financial Derivative, says low foreign exchange (FX) inflow and the lack of confidence in the local currency are responsible for the continuous fall of the naira.
Rewane spoke on Monday in an interview with Channels
Television.
Nigeria’s currency, the naira, on Monday, traded at N1,419
to the dollar in the official market.
Speaking on the recent fluctuations in the market, the
economist said increasing interest rates, improving production as well as
fixing the minimum wage are measures that should be considered to strengthen
the naira.
“Nigeria is one of
those countries, which claims it has a managed-floating exchange rate. But in
fact, it has a fixed exchange rate,” Rewane said.
“This transition from what was the fixed exchange rate under
the same period to what is now a managed floating rate, which is what it is
trying to achieve, is what is causing these distortions.”
Rewane said the restrictions and exchange rate controls are
also part of the factors leading to the fall of the local currency.
“We have the
nonconvertible currencies which Nigerian exchange control. You have heavy
restrictions and those are the things that cause distortion and take the
currency away from its fair value and you have speculators that take things
into consideration,” he added.
“So why is the naira falling? One low supply of dollars.
When do you have low dollars? Anytime when the supply is short, the price
increases, that’s the economics.
“The loss of confidence in the currency as a store of value.
People are now putting all their money in dollars or domiciliary accounts or
taking them out.
“It must be a store of value and people must have confidence
in our currency. Increased naira speculation and fear because they are trading,
some people are greedy, some are scared, and some are greedy and afraid. Then
the restrictions and access control. Obviously, the more you have restrictions,
the more you say to people, abokis and all, you are chasing shadows.
“The currency markets
are free and if you want to support your currency you intervene with cash
supply. And then finally, we have what are called negative interest rates.
“You cannot have inflation rate at 31% and you have an
interest rate at 3, 4 or 5% there is a negative real return. As long as there
is a negative real return, there is the propensity to consume rather than to
save, and if they don’t save, that currency goes down.”
‘NO QUICK FIX’
Speaking on possible remedies, he said while the federal government deploys policies, there should be a need to get “honest and professional feedback”.
He also urged the government to “incentivise productivity,
construction of the roads and airports, and taking the government out of all of
these sectors where they have no competence; they either don’t have the
competence, bone or integrity to run those businesses”.
“Let them get out of there and use the increased revenue
from subsidy remedy and the realignment and use that to do the things that they
have to do,” he said.
Rewane said there is “no quick fix to the problem of the
economy”.
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