Understanding the part of CBN in foreign currency exchange (Pulse contributor's opinion)

Desmond Omoluru

February 4, 2022 7:25 PM

Lately, there has been considerable steps taken by the CBN in other to cushion the persistent and opprobrious depreciation of the naira against foreign currencies.

Understanding the part of CBN in foreign currency exchange (Pulse contributor's opinion)

While the CBN embarks on its quest as the apex bank to step in and ensure macroeconomic progress by achieving exchange rate stability, it should be noted that these actions are only one way or one sided in achieving naira sustainability.

Basically, it should be noted that the exchange between currency are divided into the demand and supply side, and only an equilibrium between the supply and demand of foreign currency can establish exchange rate stability.

With the understanding of this concept it suffice to say that majority of the steps taken by the CBN are mostly steps which impacts the demand of foreign currency. Looking at the various approach by CBN which involves the most significant, which is introducing the E-naira, as well as cryptocurrency restrictions.

All this tends to address the increasing demands for foreign currency, while also trying to sustain the efficiency of the naira. In all these, there is little or no attention given to the supply of foreign currency into the country, and this is also a significant aspect of currency exchange which could determine how effective the current policies by the CBN could become.

Therefore, it is to no surprise that with all the steps taken by the CBN, the naira still experience further level of depreciation. Apparently In order to increase foreign currency supply, the following has to be achieved; agricultural transition from primary product export to export of secondary product to increase yield from export sales, raising interest rate to attract foreign investors, and also ensuring a better ease of doing business which can create more employment leading to an increase in production capacity at the same time limiting depends on imported goods which Nigeria has a comparative advantage in.

In conclusion, this shows that the supply side of the currency exchange has a lot to play in establishing stability and this economic factor needs to be given more credence in accordance with the demand side.

Desmond Omoluru