Nigeria’s vice president urges central bank to review FX management strategy

FILE PHOTO: Nigerian naira banknotes are seen in this picture illustration
FILE PHOTO: Nigerian naira banknotes are seen in this picture illustration, September 10, 2018. Picture taken September 10, 2018. REUTERS/Afolabi Sotunde/Illustration/File Photo

October 12, 2021

By Felix Onuah

ABUJA (Reuters) – Nigeria’s central bank needs to review its foreign exchange management strategy and ensure that the naira’s valuation reflects market reality, Vice President Yemi Osinbajo said on Monday.

Nigeria has several exchange rates operating in parallel, a system put in place during a 2016 oil price crash because the government was seeking to avoid a large official devaluation of the naira as a matter of national pride.

Osinbajo urged the central bank to rethink its demand management policy, which it has used to restrict imports in an attempt to manage pressure on the currency.

“I think we need to move our rates to be as reflective of the market as possible. This … is the only way to improve supply (of dollars),” the vice president said.

He was speaking at a mid-term retreat of government ministers chaired by President Muhammadu Buhari.

Osinbajo said the naira had since June been trading at 411 to the U.S. dollar on the official market , supported by the central bank, and at 565 naira on the black market , where it trades more freely.

“We can’t get new dollars into the system, where the exchange rate is artificially low,” he added.

A central bank official last month said the bank was worried about boosting dollar supply on the currency market and not valuation of the naira, adding that the level of the currency was expected to adjust based on demand. He said market failures had made the bank adopt a managed float regime.

Nigeria has been battling dollar shortages resulting from low prices for oil, its main export, and disruptions linked to COVID-19. The central bank has devalued the currency three times since March last year, but the naira has continued to weaken.

The local currency has hit new lows on the black market since the central bank in July banned dollar sales to bureau de change operators in a string of curbs on the currency market.

(Reporting by Felix Onuah; Writing by Chijioke Ohuocha; Editing by Catherine Evans and Alistair Bell)