Forex unification, failure of CBN’s I&E window to save the naira

Three months into the implementation of the new monetary policy, ‘Forex Unification and the CBN I&E Window’, by the President Bola Tinubu administration, the naira is yet to regain its value. The consistent free fall of the national currency to devaluation pressures at the official, parallel and black markets suggests that Forex Unification and I&E Window are not working.

The forex environment is being overtaken by its own systemic and systematic contradictions, especially, in the so-called I&E Window of a ‘Willing Seller and Willing Buyer’ operating system that has the official Nigeria’s Forex market. These twin policies are not saving the naira from further devaluation that has now doubled the amount former President Muhammadu Buhari left; it was N465/N789 to $1. Under Tinubu’s Forex Unification and CBN I&E Window it’s N920/N1000 to $1. We do not envy President Tinubu and the current CBN Acting Governor, Folashadun Shonubi, on the policies they consider best to address the naira free fall or the corruption in our forex market. We believe they mean well with these policies and other economic policies of government to improve the economy. Government may have toyed with forex liberalisation as its best option, but sadly the current realities do not require not liberal monetary policies, because it is a platform for greedy sellers and miserly buyers to line to their pockets. Consequently, government should have known the implications of a free market economy in a fragile environment like ours where greed and selfishness reign supreme. As a humble economic researcher and analyst, l welcomed these policies cautiously because it was not going to help the naira gain its value as government and the CBN anticipated a robust national currency. My take on the Forex Unification and I&E Window was articulated in a piece titled “Sound Naira is Required for Forex Unification Success”. l was quick to remind the authority of not doing what was germane, but were instead too fast to deploy the policies.

Nevertheless, the questions are: does government know that the Forex Unification or I&E Window cannot survive under a deficit economic structure? Has President Tinubu forgotten that our economy is import-dependent, where every businessman and woman looks for the dollar to feed our consumption of foreign items? Does President Tinubu think Forex Unification can survive under a free market, where the goal of the players is to maximise profit at all costs? Is it not time for the CBN and President Tinubu to acknowledge the fact that the uncertainty around the four major sources of FX inflow into Nigeria, namely, proceeds from crude oil exports, non-oil exports, Diaspora remittances, and foreign direct/portfolio investments are dwindling, and in need of a pragmatic policy direction? It should be noted that the question of adequate forex supply to demand requires discipline and stringent measures and methodologies if we truly want to end corruption within the corridors of our FX market. Even though our number one source of FX revenue is crude oil, which is currently gaining momentum at a high price, hedging close to $100 per barrel of crude, however, we need not remind ourselves that we are at the mercy of the international market price fluctuations. If it drops below $70/barrel or any shock due to the uncertainty around it, the burden will be huge on our foreign reserves as well as on the government cutting down its spending on projects that would have reduced infrastructure gaps and poverty. Meanwhile, the answers to the earlier questions raised stare us in the face.

And for us, the answer, evidently, is in the vision of President Tinubu and the CBN redesigning the Forex Unification and I&E Window beyond the liberalisation model which is feeding the so-called ‘Willing Buyers and Willing Sellers’ with surplus forex from crude oil export, non-oil export proceeds, Diaspora remittances, and foreign direct/portfolio investments, because, these would create opportunity for round-tripping, speculation, overpricing of the dollar and devaluation of the naira. In other words, while the CBN struggles to deflate our foreign reserve to meet the I&E Window demands, an oppressive distortion is brought to bear on the naira exchange rate through the back door resale of the dollars at the black market. This now raises the question as to where the black market players get the dollars in excess since the CBN cannot meet the high demand.

Fundamentally, we need a monetary policy that will salvage the Nigerian economy from oppressive and retarded activities in our FX market. The way forward is first, President Tinubu must rethink Forex Unification that incorporate free market or liberalisation as the surest way to bring naira back to its great value. It is our prayer that the president considers other parameters that would help naira regain its value, by finding solution to our import dependency syndrome, poor infrastructure, governance and economic policy somersaults. President Tinubu must avoid the mistake of surrendering the forex market completely to liberalisation apostles. Second, the CBN as the monetary authority must be steadfast to avoid distortions in the monetary instruments it deploys. Third, ensuring monetary equilibrium equally requires eliminating or minimally reducing the burden of round-tripping and double-dealings in forex, which in most cases compound the loss of confidence in the apex bank official forex platform.

Fourth, the apex bank with all sense of urgency must ensure the Deposit Money Banks (DMBs) proactively take advantage of opportunities available in the export/import window to fund the forex needs of importers. In conclusion, one of Nigeria’s finest economists and monetary expert, the late Sir Henry Boyo, would always admonish the CBN “to create monetary frameworks and policies that strengthen the naira, an act that would be in the interest of all Nigerians.” We reemphasise it today; President Tinubu and the CBN, please, save the Nigerian economy and redeem the naira. Olamilekan, political economist, writes from Abuja via [email protected], 08107407870