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How A Unified Exchange Rate Regime Will Impact Nigeria’s Economy

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6 years ago

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Analysts at Financial Derivatives Company Limited have made a strong case for a unified exchange rate regime, saying this is critical to jump starting the nation’s economy. Bismarck Rewane Among other things they said that a unified exchange rate impacts the economy positively more than the current multiple exchange rate regime, which they noted creates opportunity for arbitrage and can trigger hyperinflation, as experienced by Venezuela. Noting the the number of countries maintaining multiple exchange rates has been declining since 1990s; they argued that the possibility of exchange rate convergence in Nigeria is now less remote. They made this observation in an article titled Floating Exchange Rate: A Road to Perdition – CBN (Matters Arising)”,   published in the FDC Bi-monthly update.  The article was in response to recent comments by the CBN Governor, Mr. Godwin Emefiele, who in his response to the presidential candidate of the Peoples Democratic Party, Alhaji Atiku Abubakar’s  desire to float the naira, said that floating the naira will lead to economic perdition.  Atiku’s forex policy

In November 2018, Alhaji Atiku Abubakar had the said that if elected president he would abolish the current multiple exchange regime and instead float the naira. In an interview with the Africa Report, Atiku said: “I would prefer to float the naira because I believe that will bring about a more stable exchange rate. Therefore, foreign investors are more likely to return to Nigeria and invest as much as possible. We have to create more incentives for foreign investment and relax conditionality, remove regulations as much as possible,” said. When asked about the possibility of this approach driving up inflation, he said:  “There could be devaluation and there could be a lot of inflow of foreign currency into the country. The devaluation that is likely to result can be balanced with the relatively huge (sums of) foreign currency that will be coming into the country. “We had that situation prior to the departure of (former president) Goodluck Jonathan. At that time, we had a pile of foreign investment in the country, and there was stability of the naira. So people did not have to go to the central bank to look for foreign exchange because there was foreign exchange in the market and in the banks. So it could turn out to be a win-win situation.” Mr Godwin Emefiele answering questions during his screening by the Senate for Central Bank Governorship in Abuja on Wednesday Emefiele’s response The CBN Governor, Mr. Godwin Emefiele however responded saying that floating the naira as intended by Atiku  is a road to perdition. “The MPC reviewed it and concluded that it would be wrong. It is as good as saying that we should go back to the era of Structural Adjustment Programme (SAP) in Nigeria,” he said. “The implication can better be imagined. It will certainly lead to capital flight, lead to massive depreciation or devaluation of the currency and ultimately to currency crisis in Nigeria and I think we should all know that it is a road to perdition to ever go in that direction”, Emefiele said during a press briefing at the end of the Monetary Policy Committee (MPC) in last month. Nigeria’s romance with fixed exchange rate Weighing on this debate, analysts at FDC said: “The CBN has used a managed-fixed exchange rate since the introduction of the Investors and Exporters foreign exchange (IEFX) window in April 2017. “Like Nigeria, most economies operate within the intermediate points of a fixed and floating ex-change rate. The slant towards either of the two regimes depends on the exchange rate policy of the country’s monetary authority and the political manifesto the government seeks to achieve. “The International Monetary Fund (IMF) is a key proponent of a free floating exchange rate due to the benefits of an independent monetary policy. However, short-term speculation and inadequate fiscal discipline continue to undermine the potentials of a free floating exchange rate. “In the 1980s, more than 85 percent of economies adopted a fixed exchange rate which was pegged against the dollar, while the dollar was pegged against gold. Very few countries adopted a free floating exchange rate, as most transactions at the time were dollar-based. Today, the paradigm shift and the emergence of new world powers have tilted the exchange rate regimes in favour of a free floating and managed floating exchange rate. Fixed exchange rate regime is quickly losing its relevance, as it now accounts for less than 13% of exchange rate regimes in the world.  Unified vs  Multiple exchange rates “A multiple exchange rate regime is a systemic policy tool adopted by emerging markets to pro-mote certain activities through subsidies. This price adjustment mechanism involves the use of different exchange rates for different transactions. This creates an official rate for selected trans-actions and a parallel market rate. For a unified exchange rate, only one market rate will be at play at which all transactions will be embarked on. “Nigeria currently operates a multiple exchange rate system with seven different rates and at-tempts to unify these rates have predominantly been abortive. The difference between the extreme bands has narrowed in the last half decade. This suggests that the possibility of an ex-change rate convergence is now less remote.” Former Vice President Atiku Abubakar Venezuela’s experience with multiple exchange rates Citing the experience of Venezuela as example of the dangers of multiple exchange rates,  the FDC analysts said:  “ Like Nigeria, Venezuela maintained a multiple exchange rate regime and its oil revenue accounts for 95 percent   of forex earnings. A move to hedge against exchange rate volatility prompted the monetary authorities in Venezuela to peg its currency against the dollar. This was also complemented by a multiple exchange rate policy to subsidize importation of basic amenities such as food and medicine. “However, this created room for currency arbitrage as cabals sourced for the Bolivar at a subsidized rate and subsequently sold in the black market at a premium (forex round-tripping). The general shortage of forex and the lack of discipline led to the currency instability and the world’s highest inflation rate of 1,300,000 percent  in November 2018. “Similarly, the adoption of a multiple exchange rate regime also implies that some sort of subsidy exists, which is an indirect tax. When juxtaposed with the four canons of taxations, it only meets one criterion, economy. The fact that the bourgeoisie and proletariat are charged the same makes exchange rate subsidy unfair, inconvenient and uncertain.” Way Forward Highlighting the many benefits of a unified exchange rate regime to the Nigerian economy, the FDC analysts said:   “To jumpstart Nigeria’s economic growth and sustain stability, the monetary authorities need to shift from a bailout provider to a proactive reformer. This emphasizes the need to anticipate financial market developments and provide incentives for market players. “Similarly, transparency in exchange rate objectives will bolster confidence in the forex market.  For instance, increasing market information on the sources and uses of foreign exchange will improve information sym-metry, a move towards efficient market hypothesis. “A well functioning forex market allows the exchange rate to respond to market forces and reduce market distortions.  In order to gradually move towards a unified exchange rate, the monetary authorities need to cut the seven-tier exchange rate system considerably. “This will ease the capacity strain on manpower, and reduce compliance and enforcement costs of maintaining a multiple exchange rate. This will also reduce the pressure on Nigeria’s external reserves and the frequency of the CBN’s interventions. “A floating exchange rate remains a critical input towards achieving currency convertibility, which is poised to drive financial flows. A convertible currency also promotes international commerce and lifts barriers to investment flows. This would further deepen trade relations, improving Nigeria’s prospect to reach its potential growth rate.”

 

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Fidelity Bank Supports Modupe Cole Memorial School, Lagos

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4 hours ago

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February 4, 2025

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Fidelity Bank Supports Modupe Cole Memorial School, Lagos

AJAGBE ADEYEMI TESLIM

SPONSORED BY: H&H

In continuation of its drive to alleviate the impact of economic hardship and suffering among indigent Nigerians, Fidelity Bank Plc recently donated food items to Modupe Cole Memorial Childcare and Treatment Home School in Akoka, Lagos.

CAPTION:

L- R. Tolulope Rojaiye, Team Member, Brand and Communications, Fidelity Bank Plc; Osho Olufunmilayo Bamidele, Vice Principal 2, Modupe Cole Memorial Childcare and Treatment Home School; and Victoria Mbonu, Class President, Intellect Nexus Inductee Class, Fidelity Bank Plc; during a Corporate Social Responsibility (CSR) donation event executed by Fidelity Bank at Modupe Cole Memorial Childcare and Treatment Home School, Akoka, Lagos recently.

The donation which aligns with the Bank’s Corporate Social Responsibility (CSR) pillars of education and health, was championed by the Intellect Nexus Class of 2024 under the Fidelity Helping Hands Program (FHHP). Through this initiative, Fidelity Bank staff identify community needs, raise funds to address them, and receive matching support from the bank to implement impactful projects.

Explaining the bank’s commitment to supporting its host communities, the Divisional Head, Brand and Communications Division, Fidelity Bank Plc, Dr. Meksley Nwagboh, noted that, “At Fidelity Bank, we recognise the symbiotic relationship we have with the communities where we operate. This informs our decision to not only provide our host communities with relevant financial services but to also impact them with developmental projects.

“We are inspired by the great work being done here at Modupe Cole Home School and our donation is a small token of appreciation for this as we aim to support the well-being of these exceptional children.”

On his part, the Vice Principal of the school, Mr. Isiaka Ajani, expressed gratitude for the bank’s consistent support noting that Fidelity Bank’s gesture is a huge encouragement to the school.
“We say thank you for the gift items that you have brought to us today, and this shows that we are not alone in the mission to provide care and education to children with special needs.

“This institution is a testament to the belief that there is ability in disability. We have children here who have passed common entrance examinations and gained admission into higher institutions despite their challenges. It is our mission to help them achieve their potential.

“The school had made effort to provide academic and vocational training programs in bead-making and hairdressing, and specialized care for residents with severe disabilities for its 476 residents, many of whom have been abandoned by their families.” He stated.

Fidelity Bank is a full-fledged customer commercial bank with over 8.3 million customers serviced across its 255 business offices in Nigeria and the United Kingdom as well as on digital banking channels.

The bank has won multiple local and international awards including the Export Finance Bank of the Year at the 2023 BusinessDay Banks and Other Financial Institutions (BAFI) Awards, the Best Payment Solution Provider Nigeria 2023 and Best SME Bank Nigeria 2022 by the Global Banking and Finance Awards; Best Bank for SMEs in Nigeria by the Euromoney Awards for Excellence 2023; and Best Domestic Private Bank in Nigeria by the Euromoney Global Private Banking Awards 2023.

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Access Bank to Host Pioneering Africa Trade Conference in Cape Town

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6 days ago

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January 29, 2025

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Access Bank to Host Pioneering Africa Trade Conference in Cape Town

AJAGBE ADEYEMI TESLIM

SPONSORED BY: H&H

Access Bank PLC is set to host its first-ever Africa Trade Conference (ATC), a landmark event focused on advancing Africa’s economic transformation under the theme, ‘Empowering Africa Through Trade, Innovation, and Sustainable Growth’. Scheduled for March 12, 2025, in Cape Town, South Africa, the conference is poised to bring together the most influential voices in trade, finance, and policy to address the future of commerce across the continent.

With Africa’s trade finance gap estimated at $81 billion annually, the conference aims to tackle the systemic challenges hindering trade, particularly for SMEs and domestic firms. By fostering collaboration among key stakeholders, the Conference will explore innovative solutions, sustainable trade practices, and strategies for expanding African economies into global value chains.

Roosevelt Ogbonna, Group Managing Director/Chief Executive Officer, Access Bank PLC, emphasised the importance of the Africa Trade Conference, in addressing these pressing issues. “The Africa Trade Conference represents a crucial step in redefining Africa’s trade potential. By creating platforms for dialogue, innovation, and actionable solutions, Access Bank is enabling African businesses to connect and thrive in the global economy.”

Access Bank’s presence across 24 countries globally, including 16 in Africa, provides a unique advantage in facilitating inter- and intra-African trade. The Bank’s growing network positions it as a key player in addressing trade complexities and promoting inclusive growth across the continent.

Seyi Kumapayi, Executive Director, African Subsidiaries, Access Bank, highlighted the broader vision of the forum, saying, “The Africa Trade Conference is a platform to not only address Africa’s trade challenges, but to champion the continent’s opportunities. Through strategic partnerships, tailored financial solutions, built on the ethos of sustainability, we are paving the way for Africa’s businesses to take their place on the global stage.”

This flagship event will convene a distinguished line-up of seasoned speakers, and top executives from leading international banks, Development Finance Institutions (DFIs), and captains of industry in Africa.

The ATC will also shine a spotlight on the transformative potential of the Africa Continental Free Trade Area (AfCFTA), which aims to reduce trade barriers, enhance infrastructure, and integrate African economies into global trade networks.

Furthermore, the event will explore critical themes shaping the continent’s economic future, including the transformative role of digitisation and innovation in global trade, solutions for overcoming trade barriers to enhance market access, as well as sustainable trade practices and innovative financing models, thereby providing a comprehensive roadmap for advancing Africa’s position in global commerce. Please visit https://africatradeconference.accessbankplc.com/ for more information.

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Union Bank Rewards 360 Customers with N21 Million in First Save and Win Palli Promo 4 Draw

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6 days ago

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January 29, 2025

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Union Bank Rewards 360 Customers with N21 Million in First Save and Win Palli Promo 4 Draw

AJAGBE ADEYEMI TESLIM

SPONSORED BY: H&H

Union Bank, Nigeria’s leading financial institution, has kicked off its Save and Win Palli Promo 4campaign on a high note following the announcement of its first set of winners in its inaugural monthly draws.

The first live draw of this season, which took place at the Bank’s Head Office in Marina, Lagos, rewarded 60 customers with ₦100,000 each. Additionally, 300 other winners went home with ₦50,000 worth of gift vouchers during the inaugural live draw, which was conducted transparently and digitally under the supervision of relevant regulatory bodies. The winners cut across the nation.

Speaking at the first monthly draw, Gloria Omereonye, Union Bank’s Area Business Executive for Lagos Island 1, stated, “Union Bank is always dedicated to rewarding customers for their loyalty and financial discipline.

We are pleased that our promo has continued to achieve its noble goals of providing succour to our customers through our gifts and rewards, especially in these economically trying times, while facilitating a sustainable savings culture for future goals and objectives.”

Save & Win Palli Promo is a nationwide campaign designed to reward both new and existing customers with cash prizes. Season 4, which began in December 2024 and runs until May 2025, offers customers the opportunity to win ₦131 million in cash prizes, Motorcycles, Tricycles, Fuel Vouchers, and a star prize of ₦5 million, which will be handed out to three lucky winners at the grand finale.

Open to new and existing customers, the Save and Win Palli Promo requires participants to save a minimum of ₦10,000 and perform a minimum of five transactions monthly to qualify for draws. Monthly winners can receive ₦100,000, while quarterly draws will reward lucky savers with Motorcycles, Tricycles, and other exciting prizes.

Customers who save in multiples of ₦10,000 will increase their chances of winning.

New customers can join the promo by downloading the UnionMobile app to open an account or visiting any Union Bank branch.

Existing customers can reactivate accounts by calling the 24-hour Contact Centre at 07007007000 or visiting a branch.

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