For the past 10 years or more, concerted efforts by managers of the nation’s economy to re-position it on a stronger pedestal of productive virility and by implication, achieve a realistic exchange rate for the Naira and sustain macroeconomic stability on a longer term have produced measurable results, even as realities show that more needed to be done to ensure long term inclusivity of the achievements recorded so far. TOLA AKINMUTIMI. reports.

Relentlessly and with the gusto of a fighter who is determined to win his contest, the Central Bank of Nigeria, CBN, has, in collaboration with the fiscal authorities, been aggressively innovative in its responsiveness to the emerging challenges in the economy by adopting appropriate monetary policies as well as providing advisory services to the fiscal authorities in the drive to achieve financial and macroeconomic stability in the economy.

The apex bank has been faithfully pursuing its statutory mandate of providing the needed monetary guide on how best to ensure that the once booming but now structurally distorted and underperforming economy rises back to its feet and exhibit its enormous but poorly tapped potentials.

But then, since the task of achieving national currency’s exchange rate stability is hardly won at the monetary policy front level alone but depend on other sundry fiscal and economic variables, efforts by the monetary and fiscal authorities, particularly those taken in the past year, have failed to rescue the Naira from cascading down the exchange rate ladder even when other currencies are managing to stay afloat in the stormy forex (FX) trading environment.

One of the most significant monetary policy measures which stoked the fire of public discourse among stakeholders in financial industry’s sector was the CBN’s guideline issued on June 23 last year, mandating BDC operators in the country to increase their capital base by 250 per cent from N10 million to N35 million and which also pegged the mandatory cautionary non-interest deposit at N35 million from the initial N1 million.

The directive, which is in accordance with the provisions of the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 17 of 1995 and the BOFI Act of 1991 both of which empower the CBN to license and regulate Bureaux de Change (BDC) operations in the country, gave them a 21-day ultimatum to comply or have their licences withdrawn.

Like a relentless soldier never prepared to surrender at a battle front in the face of all odds, the apex bank last week announced the closure of its rDAS/wDAS foreign exchange window in what analysts have tagged a new phase in its sustained initiatives to eliminate all forms of abuses in the foreign exchange market.

The measure, which came barely three months after the Naira exchange rate was officially fixed at N168 to a dollar, was taken, according to a statement issued by the apex bank’s Director, Corporate Communications, Mallam Ibrahim Mu’azu, to effectively manage the widening margin between the rates in the interbank and the rDAS window, thereby forestalling the undesirable multiple exchange rate regime in the FX market.

The regulatory banking institution stated that while the recent sharp decline in global oil prices and the resultant fall in the country’s foreign exchange earnings remained a major challenge to the country, the sharp practices in the FX market by dealers had continued to affect the national currency’s exchange rate adversely, hence the need to reverse the ugly trend.

It listed some of the abuses that characterized trading in the market to include, round-tripping, speculative demand, rentseeking, spurious demand, and inefficient use of scarce foreign exchange resources by economic agents, all of which have continued to put pressure on the nation’s foreign reserves with no visible economic benefits to the productive sector of the economy and the general public.

The CBN clarified: “Henceforth, all demand for foreign exchange should be channeled to the Interbank Foreign Exchange Market. For the avoidance of doubt, all authorized dealers and the general public should note that the CBN will continue to intervene in the interbank foreign exchange market to meet genuine/legitimate demands”

Whereas some past decisions by the apex bank to sanitise the FX market, particularly the June 2014 directive to the BDCs had elicited mixed reactions that border on experts’ misgivings about the appropriateness or timeliness of such measures, the latest decision to shut the rDAS window had been seen by most commentators as desirable for the economy.

Reacting to the CBN’s decision, a financial system analyst and chartered banker, Mr Ayorinde Taylor, described the closure of the r/DAS FX window as a desirable step towards measuring the actual foreign currencies demand in the economy and how to match such needs with supply in view of the pervasive abuses in the FX market over the years.

Taylor, who is also the Managing Director of Analytics Secure Associates, a consulting outfit providing hybrid financial management and advisory services, closing the window would discourage aggressive speculation and round tripping as well as help to improve the depth and efficiency of the market.

He said: “The closure of retail forex window is right step to address the ever increasing demand for the USD, it will help stabilise the local currency and help improve the depth and efficiency of the market ,reduce sharp practices discourage aggressive speculation and round tripping.

“It will help the real sector to look inwards as cost of foreign raw materials will increase significantly leading to reduce profit margins. Companies will begin to apply backward integration and source for locally produced raw materials, this will surely impact positively on agriculture and fast moving consumer goods (fmcgs).

“It will also increase transparency in this market but economy may witness high rates of inflation and interest rate”, Taylor added.

Taylor, however, pointed out that to translate the potential benefits of the apex bank’s latest measure to tangible gains for the economy, there was the need to be done in order to tackle the lingering infrastructure, trust and legislative deficiencies.

Speaking in a similar tone, the Director General of the Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, noted that the closure of the foreign exchange window would result in the escalation of production cost for firms that had access to this FX window.

Yusuf, however, explained that “given the unprecedented disparity between the CBN rDAS forex window and the interbank and the parallel market rates, it was clear that the rDAS forex window was not sustainable.

“The huge premium of about 20 per cent was a major incentive for round tripping, corrupt practices in the management of the FX and speculative activities in the foreign exchange market. It was also a major source of volatility in the market. It was only a matter of time for this decision to be taken by the CBN”, the economic analyst added.

In her remarks, Managing Director, Global Research at Standard Chartered Bank Limited, Razia Khan, noted that the CBN had by the decision discontinued subsidy of FX sales and by doing so, hedged the national currency since the fall in the value of the Naira over succeeding weeks “was frequently large enough to trigger a daily shutdown of Nigeria’s FX market.

Khan stated that the decision was “positive news, and should help create more transparency in the Nigerian market. However, with oil prices currently at levels where forex reserves will be difficult to replenish, the CBN’s appetite for continued support of the interbank forex rate will be closely monitored.”

He, however, expressed belief that the Bureau De Change window would be retained as that is a Special Purpose Vehicle, SPV, through which the CBN wanted to cater to the needs of those who need small amounts of foreign exchange for the meeting of personal obligations as well as coincide with the recent call for a uniform rate of exchange to prevail in the market.

Chizea clarified: “Some of us have argued in the past that you do not have anything near a real market under such circumstances giving the lie to those who recommend that the Naira should be allowed to float in the market.

“If there is no market you cannot then turn round to begin to ask for the market to determine the ruling rate. The CBN served notice that this was on the way when it commenced intervention at the interbank market outside its official range. It was reported that the CBN actually intervened selling dollars at the rate of about 198 Naira at the interbank market.

“It will be interesting to see how all this will unfold because if I remember well this had been attempted before and could not be sustained. Well the circumstances might not be exactly the same and therefore we should leave our minds open as the scenario unfolds. If the rebound in the oil market can be sustained then we might begin to see the end of the recent problems we have encountered with the management of the exchange rate”, the seasoned economist added.

Reporting on the apex bank’s action, Bloomberg posits that “the changes may help to stabilize the Naira in the near term and should ease pressure on the reserves. A smooth election would also help reduce some of the FX premium.

“However, we expect that the balance of payments will continue to remain under pressure and without a timelier, coordinated and credible policy response, further adjustments in the exchange rate look likely”, it added.

In his comments, the Managing Director, Financial Derivatives Company (FDC), Mr. Bismarck Rewane, said that the measure indicated a prelude to a regime of full convertibility of the Naira with the resultant positive implications for improved non-oil sector revenues to government from larger export volumes.

The seasoned financial analyst noted that with the latest measure, the FX market “structure has changed from a price discriminating monopoly towards pure competition; moving currency towards fair value and convergence in market rates between Interbank Foreign Exchange Market (IFEM) and Bureau De Change (BDC)”

Rewane believes that in addition to creating a more conducive environment for a liberalized and competitive FX market, closure of the r/DAS window portends a reduction in arbitrage opportunity and great prospects for higher revenue for the tiers of government.

Since achieving a stable exchange rate for a national currency is a function of policy variables in which monetary measures remain crucial, the general consensus of analysts is that no matter how good the intentions of the CBN are to stabilise the Naira exchange rate, the latest measure by the apex bank may be scuttled if the appropriate fiscal policies and political will are not there to complement the bank’s new moves.

In what could be seen as reflecting a cautious optimism in his stance, a seasoned management consultant, Dr Boniface Chizea, believed that if the Central Bank can sustain this approach it would mean that Nigeria would be inching close to the liberalization of the Naira and therefore the end of official rate, interbank rate and parallel market rates.