The Lagos Chamber of Commerce and Industry (LCCI) has said that the only way out of the economic woes in the country is to replace the current fixed exchange rate regime with a flexible rate, which allows the rate to reflect the fundamentals of demand and supply. While calling on the Federal Government to advise the Central Bank of Nigeria (CBN) on the change, the chamber said that sustaining the fixed rate by the apex bank had shown that the country does not have enough reserves to support the rate at N197 per dollar.
The chamber said that depression set into the economy after the apex bank came out with the current fixed regime, adding that the economy was already heading towards recession.
According to LCCI, “the current framework adopted by the CBN is a fixed exchange rate regime. This model is better suited for a country that has adequate reserves to support fixed rate. In Nigeria’s case, there are no reserves to support the current rate at N197 per dollar.”
Speaking on the state of the economy in Lagos yesterday, the President of LCCI, Chief Nike Akande, said that the recent sharp depreciation of the naira at the parallel market was a cause for concern for private sector operators in the country.
She said that it was a trend that should not have been allowed to continue by the CBN, adding that it was time the apex bank adopted a flexible exchange rate regime to stem the slide and volatility in the foreign exchange market.
“What we are saying is that it is better to allow a flexible exchange rate regime as against the fixed exchange rate regime. We are saying that the fixed exchange rate regime is not sustainable in the country’s economy now because we don’t have the reserves to support the exchange rate at N197.
And that is why there is a serious liquidity crisis in the foreign exchange market. That is why demands are not being met at the foreign exchange market. So, the proposition here is that, rather than have a fixed exchange regime, we should have a flexible exchange rate regime.
“And the beauty of the exchange rate regime is that it allows the exchange rate to reflect the fundamentals of demand and supply. That is the proposal that is being made here,” Akande added. She explained that the foreign exchange policy had become a critical policy for the CBN to take a closer look at it once again, adding that reviewing the policy was in the best interest of the nation.
“It is as much of an issue to consumers as it is to producers and other stakeholders that create value in the economy. It calls for an urgent review of the current foreign exchange policy. “It is important to clarify some conceptual issues in this conversation.
The discussion at this time should not be about devaluation of the naira. It should be about a pricing mechanism that is sustainable, predictable and transparent. It is about a policy regime that would reduce uncertainty and inspire the confidence of investors. “It is about a policy framework that would minimise discretion and arbitrage in the foreign exchange allocation mechanism,” she noted.
On the importance of flexible exchange rate, the LCCI boss said that a flexible exchange rate regime was often adopted to cope with changing demand and supply conditions in the forex market. She listed the benefits of this approach to include enhancement of liquidity in the foreign exchange market, reduction of uncertainty in the foreign exchange and, therefore, enhancing confidence in investors as well as promoting transparency as a mechanism for forex allocation.
Akande insisted that if the apex bank continued to adopt the fixed exchange rate regime, the ongoing economic crisis in the country would remain, adding that the consequences were already manifesting in the widening gap between the official and parallel market rates to an unprecedented level of over 60 per cent, among other factors.
