Chief Charles Udeogaranya, a former All Progressives Congress (APC) presidential candidate in 2019, has recently voiced his complete disapproval over The Central Bank of Nigeria (CBN) foreign exchange policy that allows the floating of the naira. According to Udeogaranya, the free flow of the currency has effectively resulted in the CBN trading foreign exchange at rates that are nearly comparable to those of the parallel market (black market). While he acknowledged that this approach could perhaps help end round-tripping, Udeogaranya cautioned that it comes at a significant cost and could be a “death sentence” for the country’s economy.
He explained that in a nation that depends largely on imports and produces little of its own, demand for foreign exchange will always exceed supply. He noted that if the average monthly salary of Nigerian workers is not enough to cover the cost of necessities in other nations, then Nigeria cannot effectively compete in the global economy. He cited Switzerland as an example, where a kilogram of chicken fillet costs about $29.25, an amount that, given the present exchange rate, would be out of the reach of the average Nigerian.
Rates were previously set and overseen by the CBN.
Furthermore, Udeogaranya suggested that the Naira should not be permitted to Trade at a value higher than ₦600/1$. He further urged the CBN governor and his economic team to reevaluate the Naira floating policy. In addition, he offered the CBN his support in developing more practical plans to support the immediate recovery of the Nigerian economy. Udeogaranya reiterated his willingness to work with the CBN and the government to establish more sustainable economic policies if they are open to working with him.
The decision to allow the naira to float, which was met with a great deal of public outcry, was implemented in May of last year. This gave banks and other foreign exchange actors the flexibility to choose the rate at which they want to trade in accordance with market conditions. Prior to that, the rates were set and overseen by the CBN. However, buyers and sellers in the official FX market can quote rates that they feel comfortable with the floating exchange rate. This decision decreases the requirement for foreign Investors to go through the CBN in order to transact funds and increases access to the dollar.
Value of the naira has been steadily declining since floating.
It also enables the application of market economics, in which Supply and Demand determine rates. One of the primary objectives of the policy was to reduce the difference between the official exchange rate of the CBN and the rates that are available on the black market. It was anticipated to be an intermediate step in improving Nigeria’s Economy over time. However, the naira’s value dropped to ₦750 against the dollar in the first week following the announcement, a decrease of around 37%, and has since been steadily declining.
During a recent interview defending the free flow of the Naira policy, CBN Governor Olayemi Cardoso stated that the apex bank, acting under his leadership, took the audacious decision to allow the Naira to float on the foreign exchange market primarily to address the discrepancy between the official and parallel rates, which fostered speculation and arbitrage, and undermined market trust. The CBN’s resolve to transparency and good Monetary Policy was demonstrated to market players by the decision to close this gap, he continued, adding that less speculative trading was occurring and that stability was gradually returning to the currency markets.
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Cardoso also emphasized that the recent drops in inflation, reported by the National Bureau of Statistics (NBS) in July and August 2024, indicated that the CBN was heading in the right direction. Both the rich and the poor are being severely impacted, either directly or indirectly, by this policy, notwithstanding its mixed outcomes. Although experts predict that the strategy will strengthen the nation’s economy, only time will tell how it will ultimately turn out and whether the currency floating will be maintained for an extended period of time.