BETWEEN THE NEW CBN FOREX POLICY AND THE RISE FOR FREE MARKET ECONOMY

BETWEEN THE NEW CBN FOREX POLICY AND THE RISE FOR FREE MARKET ECONOMY
                            
By:
Nurudeen Dauda 
June 16, 2016
nurudeendauda.blogspot.com
nurudeendauda24@gmail.com 
nurudeendauda24@yahoo.com
                
Permit me to add my voice on this very important topic. The idea of free market economy proofs to be more realistic as well as efficient. The Central Bank of Nigeria (CBN) has finally eliminated the official exchange rate for the naira, replacing it with a new Forex policy which would be purely driven by the market forces. The CB new Forex policy would be purely market driven using the Thomson-Reuters Order Matching System as well as the conversational Dealing Book. The CBN will participate in the market through periodic interventions to either buy or sell FX as the need arises. In order to improve the dynamics of the market, the CBN will introduce primary Dealers (FXPD) who would be registered by the CBN to deal directly with the bank for large trade sizes on a two-way quotes basis. The new Dealers shall operate with other dealers in the inter-bank market, amongst other obligations that will be stipulated in the foreign Exchange primary Dealers (FXPD) Guidelines.

Before the collapse of crude oil price from as “high” as $115 per barrel in June, 2014 to as “low” as $27 in January, 2016, CBN supplies “Dollars” to both the Commercial banks and the Bureau De Change at the official rate after which they sold it to their customers. However, it is important to note that, CBN does not produce or print “Dollars” as it is only printed in the United States of America. CBN gets the “Dollars” through the sales of our export commodities (95% of which is from crude oil) at the international market which uses “Dollars” as the trading currency. Our crisis began when the sources of our dollars supply reduce with about $88 per barrel while “Demand” for “Dollars” remains constant.

The new decision means the CBN will no longer have any “official” foreign exchange. Before now we have had a “Dual” Forex exchange regime where the CBN funds some “critical sectors” of the economy with official Forex which is “cheaper” than the “parallel” market rate. It, therefore, means we will now have “single” market structure through Inter-Bank autonomous window driven by the market forces. More so, the new policy states that the Inter bank funds shall not be sold to Bereaux-de Change.
Similarly, the 41 items classified as “Not Valid” for foreign Exchange as detailed in the previous CBN circular shall remain inadmissible in the Nigerian FX market. Therefore, the producers of those products would source from parallel market. The CBN in June 2015 had banned giving official foreign exchange to 41 items that could be produced locally. The Policy aims at boosting local productions. The items are: Rice, Palm oil, Tomatoes paste, Vegetable oil, Metal boxes, galvanized steel, Cement, Margarine , Palm Kernel, poultry products (Chicken, Eggs, Turkey) Indian incense, Tinned Fish in sauce (Geisha & Sardines) Cold Rolled steel sheets, Roofing Sheets, Wheelbarrow, Head Pans, containers, enamelware, Cosmetics, Soap, Plastic, Rubber, steel drum, steel pipes, Wire mesh, steel Nails, Wire, rods, security Wire, Wood particle, board, Wood fibre boards, panel, Wooden doors, Toothpicks, Glass, Glassware, Kitchen Utensils, Tableware, Tiles and Wooden Fabrics.
The new policy is expected to have the following advantages: (1) Stop Dollars market speculation, (2) Encourages openness and transparency in the Forex market, (3) It will boost confidence of portfolio investors,(4) It will increase Forex availability ,(5) Nigerians that have hard currency abroad might return it in order to gain, and(6) Foreign portfolio investors and managers might return to the market as naira will be appropriately priced by the market forces.
However, the immediate effect will be that the naira will lose value but in the long term, when the market becomes pretty liquid the value of the naira would firm up. However, the market forces will be the factor that will determine the true value of Naira.
May God bless Nigeria!

Popular posts from this blog

ISRAEL V. PALESTINE :THE HYPOCRISY OF TWO STATES SOLUTION

ISRAEL V. PALESTINE :THE HYPOCRISY OF TWO STATES SOLUTION                             By:                 Nurudeen Dauda                October 19, 2023 nurudeendauda24@yahoo.com nurudeendauda24@gmail.com nurudeendauda.blogspot.com "The hottest place in Hell is reserved for those who remain neutral in times of great moral conflict"-Martin Luther King, Jr. Permit me to add my voice on the ongoing massacre of women, children, and armless civilians in Palestine. In my thought, it is not about who triggers the present massacre of the Palestinians , but it is time to talk about the 76 years of massacre of women, children, and the armless civilians of Palestine by the state of Israel which is being watched helplessly by the entire world. Before 1948, the Jews worldwide lived predominantly outside Palestine.They lived predominantly in easter...
Read more

INDEPENDENT CANDIDACY ON THE WAY

INDEPENDENT CANDIDACY ON THE WAY                                By:                          May 19th, 2023 nurudeendauda24@yahoo.com nurudeendauda24@gmail.com nurudeendauda.blogspot.com Barring any last minute changes a "bill" for the recognition of an independent candidacy will be transmitted to Mr president for his "assent". In my thought, if the "bill" is finally "signed" into law it will largely "checkmate" the "excesses" of "governors" and "moneybags" politicians who often denied "credible" candidates "tickets"in order to pave ways for their "anointed" ones no matter their weaknesses. In our modern day politics, we have had enough cases where "credible", "competent", and "popular" candidates loss primary elections due to lack of "money" or "godfather" or state governor's anointment.  In my thought, allowing independent...
Read more

ZAINAB'S ORDEAL: A CASE OF INSTITUTIONAL WEAKNESSES

ZAINAB'S ORDEAL: A CASE OF INSTITUTIONAL WEAKNESSES                         By              Nurudeen Dauda                May 5, 2019 nurudeendauda24@gmail.com nurudeendauda24@yahoo.com nurudeendauda.blogspot.com To begin with, there is now an alleged "drug cartel" in our airports which specialised in planting drugs on unsuspecting airtravellers. Of the six alleged members of the drug cartel arrested in connection with planting of Tramadol in a bag bearing Zainab Habibu Aliyu's name, three were said to be "clearing agents", two were said to be staff of a"security company" and one a staff of an "airline handling company". In my observation, the arrest of Miss Aliyu in the Kingdom of Saudi Arabia in respect of 2000 packs of "Tramadol" said to be found in a bag bearing her name has nothing , but succeeded in exposing our institutional weaknesses.Heads shoul...
Read more