- Title: NIGERIA-CURRENCY Nigeria seeks to tame dollar, boost local currency
- Date: 6th August 2015
- Summary: LAGOS, NIGERIA (AUGUST 05, 2015) (REUTERS) (SOUNDBITE) (English) ECONOMIST, BISMARCK REWANE, SAYING: "The right thing to do is to allow the currency find its true value and then you intervene in the market to bring it down to the level which you think you are comfortable with. And the way to do this is to use a combination of fiscal policy and monetary policy. What do I me
- Embargoed: 21st August 2015 13:00
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- Location: Nigeria
- Country: Nigeria
- Topics: General
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- Story Text: Nigeria has banned cash deposits in dollars and other foreign currencies in a move to stem illicit financial flows and discourage speculation on the naira currency which has been hit by a fall in the price of oil - the country's main export.
Africa's biggest economy relies on oil for 14 percent of its gross domestic product (GDP), but crude makes up 95 percent of foreign exchange, and about 80 percent of government revenues, both of which have shrunk rapidly.
Commercial banks had already started to either cap or ban dollar deposits days ago due to the unavailability of outlets that could absorb their cash.
Wire transfers are, however, still acceptable.
Officials said the move had seen a gain in the naira by 4.1 percent from 225 naira on Friday to 216 on Monday (August 03).
Bismarck Rewane, is an independent economic analyst based in the commercial capital, Lagos.
"The currency values are targeted to be stabilized and you typically use either market forces or administrative tools or a combination of both. In most cases the most efficient way of maintaining the value of the currency... establishing the value of the currency and maintaining, is by using market forces. In this case we have market forces saying that the rate of exchange is 245 naira and we have the administrative policy saying that the rate of exchange is 199. Somewhere in the middle so many things have happened," Rewane said.
With a population of 170 million people, the country imports virtually every commodity including agricultural products thanks to a weak farming sector.
Earlier in June, the Central Bank released a policy to help sustain the stability of the foreign exchange market, where importers of some goods and services like cosmetics, rice and furniture, although not banned, were limited from accessing dollars on the official interbank market.
While this will help to save its reserves, it will also facilitate home grown industries and improve employment authorities said.
However, many businessmen who use dollars for their imports and exports businesses say they have been affected negatively by the ban.
Bureau De Change owner, Abdulahi Abdulahi says he is worried about keeping hard cash because of security reasons.
"We've written to them and we are still waiting for the result to come out in our favour because we can't keep buying dollars and keeping them in stock while we cannot lodge it into the account. You know, if you buy you are meant to sell and if we are keeping it, people are not coming to buy because they have no any other account to lodge it in, then it means it will remain with you," Abdulahi said.
Economists suggest the way forward could be to remove controversial oil subsidies. Nigeria heavily subsidizes gasoline and relies on imports for the bulk of its domestic demand due to an underperforming refining system. Subsidies are said to be costing the nation billions of dollars.
"The right thing to do is to allow the currency find its true value and then you intervene in the market to bring it down to the level which you think you are comfortable with. And the way to do this is to use a combination of fiscal policy and monetary policy. What do I mean by fiscal policy? We have a huge amount, second largest amount in spend on... for imports in this country and payment is refined products. If you take away the subsidies on petroleum products, you are likely to see a a massive reduction in quantity of imported petroleum products. The money that is left over will now be used to import other things and stabilize and strengthen the value of the currency. But if you do not do that and we continue to have an inflated and bogus import bill for petroleum products, we are going to be running around trying to figure out how to stabilize the currency," he said.
Earlier this year, the statistics office said in its outlook for 2015, inflation is expected to rise to 8.78 percent, up from an estimated 8.0 percent last year, driven by the devaluation of the naira. - Copyright Holder: REUTERS
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