Muhammad Sanusi II, emir of Kano and former governor of the Central Bank of Nigeria (CBN), says the naira, at 300 to a dollar, needs no fresh devaluation, he told Daily Trust in an interview.
Sanusi said all the CBN needs to do is to make the bureau de change (BDC) segment of the market liquid, and watch the gap between official and parallel market close, with investors bringing in more forex.
“My public position is that if the Central Bank can improve on its management of foreign exchange, provide liquidity to the parallel market, get a convergence between the BDC rate and the official rate, also keep these yields where they are, that will help to attract the foreign exchange that we need to stabilize in the short term”.
“While I think the naira is undervalued, certainly if you look at the purchasing power parity, when you look at the nominal exchange rates, when you look at the rate of inflation, it stands to agree that even at 300, the naira will be slightly undervalued.
“Fundamentally, I think the exchange rate is where it’s supposed to be. What is obviously the problem, is not the fundamentals, it is the managing of the regime, so that people will have the confidence that we are indeed having a flexible exchange regime and also that we are closing the gap between the official and the parallel market rates, and that could only happen when we have liquidity within that segment.”
He said the central bank decided not to sell forex to BDCs, adding that the segment of the market where the naira is trading at 470 to 490 is a very shallow segment, which however has impact on the entire market.
“What you said is for N470-490 to the dollar might be a very small volume in transactions, but it does have the impact of creating the impression that it creates a huge gap.
“So if we could just provide liquidity to that segment and close that gap it will help a lot. But in terms of where the naira is today, there is no need for any further devaluation as far as the fundamentals are concerned but we have to take steps to address confidence.
“We spent one year defending an exchange rate regime that everybody knew would not work. It has been tried by Chavez in Venezuela, tried by Mugabe in Zimbabwe and Rawlings in Ghana.
“It never works so everybody knows it will not work for Nigeria, unless oil prices miraculously rebound. So the real issue is the confidence issue, which is convincing the world that we had an error in the past and it has been corrected now.”
The local currency was trading at 450, 550, and 495 to the dollar, pound and euro, respectively, at the parallel market.