The Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf has urged the Central Bank of Nigeria (CBN) to adopt a holistic approach to tackle the prevailing exchange rate difficulties.
Yusuf gave the advice in an interview on Thursday in Lagos.
He spoke against the background of the Federal Government’s plan to officially adopt a N750 to a U.S. dollar exchange rate for 2024.
He acknowledged that the CBN was currently implementing a new market-based approach in managing the foreign exchange market, perceived as more efficient and transparent.
He said that this had led to a weaker Naira currency, but noted that could improve over time.
According to Yusuf, the success of this new approach will rely on its ability to attract foreign investment, promote economic growth, and effectively manage inflation.
He, however, said that the government’s decision to officially adopt a new exchange rate of N750 per U.S. dollar for 2024 could have positive and negative consequences for the economy.
According to him, the current exchange rate is more realistic and reflects the true value of the currency, as well as the government’s efforts to eliminate foreign exchange subsidies.
The economist said the development had resulted in increased government revenue, as the conversion of dollar earnings at N750 is more favourable compared to the previous rates.
He explained that the major advantage of the new exchange rate is its positive impact on government revenue.
Yusuf said, “Unlike what was used before, the current exchange rate, as it’s used, is more realistic and reflects the market situation; the true value of the currency of the exchange rate.
“More importantly, the attempt to eliminate the foreign exchange subsidy that has existed before has helped t increase government revenue.
“So, these are some of the major advantages that this new exchange rate will bring to the economy and the governments; there will be major revenue advantages.
“Can you imagine when we were converting our dollar earnings at N450? You can imagine what it was under the previous governments compared to the dollar earnings at N750 to a dollar.
“You can see that the revenue implication is huge. So, there’s a major revenue advantage,” he said.
He noted that challenges encountered during previous attempts to manage the exchange rate included corruption and a large difference between the official rate and the parallel market rate.
According to him, such discrepancies create incentives for round-tripping and hinder economic stability.
“The premium between the official rate and the parallel market rate was very high; getting close to almost 100 percent. You can’t run an economy that way such that you now create incentives for people to now be round tripping.
”So, there’s a major problem of corruption and round tripping that the previous foreign exchange regime created.
”Secondly, it lacked transparency because we didn’t know who was getting what and what the criteria for the allocation was. This eroded public trust and confidence in the financial system, among others.”
