The naira’s persistent decline is caused, according to Financial Derivative CEO Bismarck Rewane, by low foreign exchange (FX) inflow and a lack of trust in the local currency.
Speaking about the recent market swings, the economist suggested that steps like raising interest rates, boosting output, and raising the minimum wage be taken to support the naira.
“Nigeria is one of those countries, which claims it has a managed-floating exchange rate. But in fact, it has a fixed exchange rate,” Rewane said.
“This transition from what was the fixed exchange rate under the same period to what is now a managed floating rate, which is what it is trying to achieve, is what is causing these distortions.”
Read Also: Rewane Outlines Policy Changes for 2024, Says Naira Undervalued
Rewane said the restrictions and exchange rate controls are also part of the factors leading to the fall of the local currency.
“We have the nonconvertible currencies which Nigerian exchange control. You have heavy restrictions and those are the things that cause distortion and take the currency away from its fair value and you have speculators that take things into consideration,” he added.
“So why is the naira falling? One low supply of dollars. When do you have low dollars? Anytime when the supply is short, the price increases, that’s the economics.
“The loss of confidence in the currency as a store of value. People are now putting all their money in dollars or domiciliary accounts or taking them out.
Read Also: Economy: Rewane projects 3.3% growth for Nigeria’s economy in 2024
“It must be a store of value and people must have confidence in our currency. Increased naira speculation and fear because they are trading, some people are greedy, some are scared, and some are greedy and afraid. Then the restrictions and access control. Obviously, the more you have restrictions, the more you say to people, abokis and all, you are chasing shadows.
“The currency markets are free and if you want to support your currency you intervene with cash supply. And then finally, we have what are called negative interest rates.
“You cannot have inflation rate at 31% and you have an interest rate at 3, 4 or 5% there is a negative real return. As long as there is a negative real return, there is the propensity to consume rather than to save, and if they don’t save, that currency goes down.”
Read Also: How To Strengthen The Value Of Naira- Economists
‘NO QUICK FIX’
Speaking on possible remedies, he said while the federal government deploys policies, there should be a need to get “honest and professional feedback”.
He also urged the government to “incentivise productivity, construction of the roads and airports, and taking the government out of all of these sectors where they have no competence; they either don’t have the competence, bone or integrity to run those businesses”.
“Let them get out of there and use the increased revenue from subsidy remedy and the realignment and use that to do the things that they have to do,” he said.
Rewane said there is “no quick fix to the problem of the economy”.
