The Central Bank of Nigeria (CBN)’s director of monetary policy, Hassan Mahmud, has suggested that the institution is not worried about the naira’s valuation but is instead interested in “boosting dollar supply on the currency market.”
Naira Depreciation
According to a report, Mahmud’s remarks were made just a day after the local currency touched a new low of 532 naira for one dollar on the parallel market. This new parallel market exchange rate differs significantly from the CBN’s current spot exchange rate of approximately 411 naira to the dollar.
Yet, in spite of the glaring differences between the two rates, Mahmud, who was addressing a virtual investor conference, insisted that fixing this gap is not the priority of the central bank. Mahmud explained:
We are not really bothered much about valuation. What we are worried about is the supply side and the confidence in the system.
Forex Shortages
Since the second quarter of 2020, Nigeria has grappled with shortages of foreign exchange which in turn increase pressure on the naira. To ease pressure on the naira, the CBN has devalued the currency three times since March 2020. In addition, the central bank has imposed a series of restrictions that are aimed at controlling the movement of foreign exchange.
Despite the devaluations and the restrictions imposed, the naira has continued to lose ground against major currencies like the U.S. dollar due to what Mahmud calls “market failures.” According to the CBN’s director of monetary policy, it is these market failures that prompted the central bank to “adopt a managed float regime.”
What is more important for Nigeria, currency valuation or USD supply? Tell us what you think in the comments section below.
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