Ex-banker and financial analyst, Mr. Steve Morka said the unified exchange rate is an imperative for the functional forex market in the country, applauding President Bola Tinubu for embarking on the move.
After earlier announcement by Tinubu, on 14 June 2023, the Central bank of Nigeria (CBN) followed up with a circular to all banks on changes to operations in the Nigerian Foreign Exchange (FX) Market, which reintroduces the ‘Willing Buyer, Willing Seller’ model at the Import and Export (I&E) window, where all eligible transactions can access foreign exchange at their preferred rates.
To this end, Morka said, since the release of this circular, the actions of the CBN have been completely at variance with the establishment of a foreign exchange market where the forces of demand and supply reigns, and by implication the willing buyer, willing seller model is allowed to operate.
The CBN, he said, will appear to be struggling from transiting from the allocation model to a market-based model.
According to him, “the CBN calling banks to submit bids and placing a cap on rates to bid negates the concept of market forces, as this will only result in multiple exchange rates as evidenced in the wide gap already established between the I&E market and the CBN intervention rates.
“One is not unmindful of the challenges the apex bank is grappling with on the supply side and the settlement of committed forward sales which are still outstanding, nevertheless, this allocation approach will not help the situation, rather it will only create multiple prices in the market which is contrary to the objective of the foreign exchange rate unification.”
Referring to CBN circular on wholesale intervention of July 24, 2023, he said, the latest action of the CBN is bound to create further distortions in the forex market.
The circular which categorised banks based on shareholders for the purpose of the maximum amount the banks bid, he said, will destroy efficiency and competition in the financial system, adding that,”the six banks with shareholders’ funds of N350 billion and above who can individually bid for 12 per cent maximum will jointly control 72 per cent of the amount offered by the CBN, not because of efficiency or any market dynamics, but by the special grace of CBN categorisation.”
Asking questions on what the CBN plans to achieve with this categorisation, he said: “ Is this the way to create an efficient forex market? Is this the way to achieve a unified exchange rate? Is this the way to improve the efficiency of the financial system? Certainly not, as this same model was tried in the late 1980’s and it failed woefully and had to be discarded after a few weeks of operation. This failed experiment is what the CBN is recycling after over 30 years! Shouldn’t we be moving forward and embracing a market economy as stated by the president?
“Why is the CBN not allowing customers to choose the bank they want to deal with? Why are they pushing customers to certain banks, irrespective of their efficiency, pricing, and other service and product offerings? The CBN can learn from Ghana, and Kenya, two countries having similar foreign exchange challenges. These countries still have a system where there exists a single rate plus or minus a few percentage points.”
Stating that, this is the time to enthrone a foreign exchange market where the interplay of market forces should dictate the exchange rate, he noted that, CBN, as a player in the market, can influence the rate by its active participation in the buying and selling process.
“Any form of CBN allocations, preferential allotments, categorisation of banks, CBN determination of exchange rates by fiat should stop. The foreign exchange market should be established and allowed to operate in a transparent and efficient manner where all the players should participate on equal basis without any one or group being favoured. Unification of exchange rates using market forces is the direction to go,” he pointed out.
