Nigerian Central Bank Told to Consider Floating the Naira, Recent Interest Rate Hike Slammed – Bitcoin News

Alhaji Aminu Gwadabe of a Nigerian organization of bureau de changer operators said the Central Bank of Nigeria should end its fixed exchange rate system. This would allow the naira to freely float against all major currencies. The leader also slammed the recent adjustment of the central bank’s interest rate to 13%, which he said could have a negative impact on Nigeria’s underperforming economy.

Central Bank to Help Save Naira

The leader of a Nigerian association of bureau de change operators, Alhaji Aminu Gwadabe, has urged the country’s monetary authorities to consider allowing the local currency to freely float against the U.S. dollar. Gwadabe says this will prevent the currency from further falling.

Gwadabe, in an interview with Nigeria’s News Agency of Nigeria is quoted as saying that he advised the Central Bank of Nigeria to intervene on foreign exchange markets. According to reports, he said:

CBN needs to simultaneously undertake large-scale dollar interventions in the open markets that will instill confidence and end the tailspin. If there’s a positive trend, it will trigger panic selling, which in turn, could buoy the Naira.

Gwadabe reportedly stated that the CBN can still earn a profit by buying back dollars from the open market.

The comments by Gwadabe, whose organization’s members were previously accused of fueling the naira’s freefall on parallel forex markets, followed recent reports of the naira’s plunge and the CBN’s subsequent call on Nigerians to stop using the greenback for speculative purposes. With the latest plunge, the naira’s parallel market exchange rate of slightly over N700 for every dollar versus the official exchange rate of N424 implies the currency may be overvalued by nearly 70%.

Naira Under Pressure by Dollar Cashout Remittances

Meanwhile, the News Agency of Nigeria report also quotes Gwadabe questioning the CBN’s decision to adjust the monetary policy rate (MPR) to 13% per annum. According to Gwadabe, the adjustment is likely to have a negative impact on Nigeria’s underperforming economy.

“Increasing the MPR contracts the supply side, it is the wrong prescription. Let’s not copy the Americans who target inflation with FED rates to curb money supply; their factors of production have been fully mobilized, ours is at less than 20 per cent and requires stimulation of the supply side,” Gwadabe is quoted explaining.

Instead of hiking the rate, Gwadabe recommended cutting the rate to 5% which he said “looks more appropriate.”

Concerning the CBN’s decision to allow recipients of remittances to cash out in dollars, Gwadabe claimed this “fuels currency substitution.” Besides exerting more pressure on the exchange rate and inflation, this central bank policy “does not have a statutory backing unlike domiciliary accounts, therefore, it is illegal.”

Gwadabe also claimed that the solution to Nigeria’s currency woes “has to be psychological too” because the current “panic buying is driven more by psychology and less by economic fundamentals.”

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Terence Zimwara

Terence Zimwara, a Zimbabwean journalist, writer and author who has been awarded the Zimbabwe Booker Prize. His writings have covered the economic problems of several African countries and how digital currency can offer an escape route.