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Friday, 26 May 2017

Why We Created Multiple Exchange Rates (CBN)

The Central Bank of Nigeria (CBN) has justified its creation of the various exchange rates for the Naira against the major foreign currencies at the forex market.

According to the apex bank, these rates were created because they were very necessary to a single economy like Nigeria battling with crisis.

At the moment, there are over five exchange rates for individuals and investors to access in the foreign exchange market in Nigeria.

While there is the official CBN rate, banks have their own rates, just like the parallel market has its own, which seems to be the highest and easily accessible to residents of the country.

Since the nation’s economy slumped into recession in 2016, the Naira has crashed against major currencies at the forex market and at a time in 2017, the local currency was almost hitting N600 per Dollar at the black market until the CBN quickly intervened.

As part of its intervention, the apex bank created different windows for various segments of the economy.

At the moment, there is a special forex window for SMEs, investors, manufacturers, invisibles and others.

However, the creation of these multiple exchange rates have been criticised by some Nigerians including a former Governor of the CBN.

But spokesman of the apex bank, Mr Isaac Okorafor, has explained the rationale behind this move by the bankers’ bank.

During an interaction with Nigerians yesterday, which was monitored by Business Post, Mr Okorafor noted that these multiple exchange rates were created because of the situation the country found itself.

According to the CBN’s mouthpiece, “In a time of crisis, economies are known to have preferential rates for critical sectors,” adding that these special windows with variant rates were creatively created to meet the forex demands of those in the different sectors.

Explaining why the Naira crashed at the forex market, Mr Okorafor said, “There was a decline in forex inflow, putting pressure on reserves and the exchange rate of the Naira.”

He further explained that this was majorly caused by “the collapse of global oil prices exacerbated by failure to diversify,” which made the economy vulnerable to the resultant shocks.

Mr Okorafor noted that during this period, there were also “speculative attacks on the Naira by people who took advantage of the depleting forex.”

He said this forced the CBN to create a “window for SMEs, investors and export proceeds, increased sales to BDCs, and introduced forward settlements.”

According to him, the CBN “created a list of items that could be produced in Nigeria and excluded them from accessing interbank forex.”

“We intensified the regulation of banks with respect to their forex practices. A number of banks were sanctioned,” he said further.

Mr Okorafor noted that these steps had been fruitful, revealing that the CBN Anchor Borrowers Programme introduced has produced 2.1MT of rice, setting Nigeria on the road to rice sufficiency by 2018.

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