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‘Why Nigeria must shun multiple currency practices, prioritise unification’

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[FILES] Buhari signs, on behalf of Nigeria, the Agreement Establishing the African Continental Free Trade Area (#AfCFTA), at the opening of the 12th Extraordinary Session of the Assembly of African Union Heads of State and Govt, in Niamey, Niger Republic, July 7, 2019. Photo/Twitter/Asorock

Financial market experts have called for an urgent unification of the multiple exchange rates in Nigeria, to create room for greater flexibility and spur needed economic growth.

The experts told The Guardian that there was the need for Nigeria to shun multiple currency practices and prioritise unifying the rates around the market-based Investors and Exporters’ Forex rate to promote Nigerian businesses and boost the Gross Domestic Product (GDP).

The experts noted that the objective of the African Continental Free Trade Agreement (AfCFTA) was to create one of the world’s largest single markets, which offers Nigeria an opportunity to accelerate growth across a range of industries and sectors.

They insisted that the country’s current multiple exchange rate systems hinders the performance of international trade as industrialists fail to access an appropriate foreign exchange rate.

Furthermore, they added that exchange rate unification and a more flexible exchange rate regime would help support the nation’s inflation targeting.

Specifically, a Senior Resident Representative and Mission Chief for the International Monetary Fund (IMF) Nigeria, Amine Mati, said the elimination of exchange restrictions and multiple currency practices would remove distortions and facilitate economic diversification.

He noted that the number of countries maintaining multiple exchange rates has been in a steady decline since the 1990s.

“The driver is that a unified exchange rate impacts the economy far more positively than a multiple exchange rate regime ever can. As seen in Venezuela in 2016, a multiple exchange rate system creates an opportunity for arbitrage and often triggers hyperinflation.

“Unifying the exchange rate will impact the Nigerian economy more positively than the current multiple exchange rate regime does, which creates the opportunity for imbalance,” he said.

He said foreign direct investors are deterred when multiple exchange rates complicate their analysis.

According to him, Nigeria has achieved the primary goal of multiple exchange rates, which is to manage the impact of a commodity shock.

“We believe Nigeria meets the foreign exchange and fiscal conditions needed to make a success of unification.

“He stressed that the elimination of exchange restrictions and multiple currency practices would remove distortions and facilitate economic diversification.

“Unifying the exchange rate will impact the Nigerian economy more positively than the current multiple exchange rate regime does, which creates an opportunity for imbalance,” he said

The Global Strategist at Renaissance Capital Ltd, Vikram Lopez, said there were no developed economies though few emerging economies in the world with multiple exchange rates.

He noted that countries tend to hold onto multiple exchange rates until well after they have served their useful purpose.

“We believe Nigeria meets the foreign exchange and fiscal conditions needed to make a success of unification.

“This unification needs to happen efficiently, particularly as financial markets are calling for an almost immediate unification of rates.

“There is a widespread belief that the greater flexibility of the exchange rate is needed to stimulate economic growth. A unified exchange rate will trigger structural reform; although it is not the only cure-all.

“Nigeria needs a coherent, coordinated package of measures such as greater fiscal motivation, fiscal reforms, public investment, and trade dominance. Without these measures, Nigeria will be unable to pursue further economic growth even in an AfCFTA driven format.”


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