The Emir of Kano and former governor of the Central Bank of Nigeria
(CBN), Muhammad Sanusi II, has said that the naira, at 300 to a dollar,
needs no fresh devaluation.
Sanusi said all the CBN needs to do is
to make the Bureau de Change (BDC) segment of the market liquid, and
watch the gap between official and parallel market close, with investors
bringing in more forex.
“My public position is that if the
Central Bank can improve on its management of foreign exchange, provide
liquidity to the parallel market, get a convergence between the BDC rate
and the official rate, also keep these yields where they are, that will
help to attract the foreign exchange that we need to stabilize in the
short term,” he told Daily Trust.
“While I think the naira is
undervalued, certainly if you look at the purchasing power parity, when
you look at the nominal exchange rates, when you look at the rate of
inflation, it stands to agree that even at 300, the naira will be
slightly undervalued.
“Fundamentally, I think the exchange rate is
where it’s supposed to be. What is obviously the problem, is not the
fundamentals, it is the managing of the regime, so that people will have
the confidence that we are indeed having a flexible exchange regime and
also that we are closing the gap between the official and the parallel
market rates, and that could only happen when we have liquidity within
that segment.”
He
said the central bank decided not to sell forex to BDCs, adding that
the segment of the market where the naira is trading at 470 to 490 is a
very shallow segment, which however has impact on the entire market.
“What
you said is for N470-N490 to the dollar might be a very small volume in
transactions, but it does have the impact of creating the impression
that it creates a huge gap.
“So if we could just provide liquidity
to that segment and close that gap it will help a lot. But in terms of
where the naira is today, there is no need for any further devaluation
as far as the fundamentals are concerned but we have to take steps to
address confidence.
“We spent one year defending an exchange rate
regime that everybody knew would not work. It has been tried by Chavez
in Venezuela, tried by Mugabe in Zimbabwe and Rawlings in Ghana.
“It
never works so everybody knows it will not work for Nigeria, unless oil
prices miraculously rebound. So the real issue is the confidence issue,
which is convincing the world that we had an error in the past and it
has been corrected now.”
The local currency was trading at 450, 550, and 495 to the dollar, pound and euro, respectively, at the parallel market.
