Dr. Jerry Ikechukwu Igwilo/
A few weeks ago CBN shocked the market by dispensing the BDCs from participating in formal FX windows, which immediately led to almost 10% devaluation of the Naira.
The BDCs were what I call “the official black market” at the time. Now the CBN has allowed us to reconnect with our original black market dealers, all we need is just a phone call and you will get your rates and deal.
In my view, the solution to this recurrent devaluation of the Naira is multifaceted, in the short term we need to enact strict exchange control laws. First, we need to start by abolishing the so-called Domiciliary (Dom) account. It does not have a place in an environment where money laundering is a scourge. In this case, the only business that has FX-related transactions can deal directly with CBN through their commercial bank.
Now, this is how it will work. If a business has an FX inflow, the CBN will notify the company through their designated commercial bank about the inflow, which is sitting with the CBN. The commercial bank will give the business the official rate of the day with the associated transaction cost. The business has only 48hrs to take the rate or the inflow will be converted to Naira at the official second day close of business rate, this is to discourage speculation. Likewise, if the business needs genuine FX it will be provided and payment made directly to vendors or service providers. It does not stop there, the CBN must also build capacity in monitoring and prosecuting those who will want to circumvent the process.
Then, we need to encourage export-related businesses with soft loans and waivers where appropriate. This will help us build capacity in other sources of FX generation. The sale of crude oil is our major source of FX and we do not have any fluence on how crude price is determined or the demand for crude. Therefore, we need to create a linkage between the fiscal and monetary policy through building export-oriented businesses.
These things are doable and many countries have done it differently, but we must be serious about solving the problem and stop playing hid and seek with issues of national importance.
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