The Central Bank of Nigeria has released an explainer to defend its action of lifting foreign exchange restrictions on the 43 items excluded from accessing foreign exchange from the official market.
The apex bank had on Thursday notified the public in a circular that it has lifted the foreign exchange restrictions placed on the importation of 43 items by the former CBN Governor, Godwin Emefiele.
Emefiele had in 2015 blacklisted the 41 items and two other items subsequently from the official forex window to reduce foreign exchange demand for products that could be locally produced, improve employment generation and conserve foreign reserves.
This created room for the importers to source their foreign exchange from the black market which weakened the parallel-market exchange rate and pushed up prices.
Explaining the reason for lifting the ban, the apex bank said, “The CBN wants to ensure price stability and is seeking to boost liquidity in the Nigerian Foreign Exchange Market. As liquidity improves, we expect the distortions to moderate.
“The CBN wants to promote orderliness and professional conduct by all Nigerian Foreign Exchange Market participants to ensure market forces determine exchange rates on a Willing Buyer – Willing Seller principle. The CBN wants a unified market for FOREX with flexible and transparent pricing.”
The CBN explained that the implication of the policy is that Monetary Policy tools would become more effective with the attainment of a unified, well-functioning market for FX, where pricing is based on a willing-buyer and willing-seller system.
The apex bank said with this, the CBN’s core functions and mandates become realizable.
The CBN explained, “The willing-buyer and willing-seller system allows the exchange rate to adjust to clear the market and ensure that there is always supply. In recent months, the widening premium between the official rate and the parallel market indicates that the rate has not been setting a clearing price.
“Importers of these products rely on the parallel market to source FX for importing these goods. This puts additional demand pressures on the parallel market, thereby widening the gap with the official rate and permanently segmenting the market. Removing these restrictions eliminates the need for importers of these products to go to the parallel market, reducing the pressure on the naira.
“The hitherto FX restrictions had implications on inflation, causing the prices of affected goods to increase.”
However, the Senior Partner and Economist at SPM Professionals, Paul Alaje, argued that the decision was not well thought out.
“I don’t know who advised us on these 43 items. It’s important we rethink the decision before it is too late. Our issues are around insufficient FX.
“How is demand stimulation policy going to bring us out of the FX crisis? This may further weaken the naira,” Alaje said in reaction to the decision of the CBN.
