Emefiele Has Finally Explained Why He Doesn’t Support A Free Float Of The Naira

The Central Bank of Nigeria’s Governor, Godwin Emefiele, has been under immense pressure for several months by both local and international analysts to allow the free float of the Naira, as these economists believe that it is the only way to re-attract foreign investment into the country and spike investor confidence. However, Emefiele has stood firm against the free float of the Naira.

Speaking at the  Vanguard Newspaper Awards, where he was recognised as the “Personality of the Year,” in Lagos, Emefiele gave 5 excuses why he has not allowed the free float to happen.

1. A false image of the Naira’s real value

Emefiele’s first excuse hinged was that the rate disparity between the interbank and parallel market exchange rates was not a good measure of the value of the Naira and suggested a purchasing power parity analysis would confirm same. Rather, he believes the disparity was due to what he called “a lot of illegal and criminal activities being carried out there”, the Naira is experiencing under-valuation. Under a free float, these ‘illegal and criminal activities’ would destroy the currency, something he said the CBN would not allow.

2. Nobody else does a free float…

Another excuse that Emefiele gave was that a free float was not a policy common in other countries. In fact, apart from Egypt, he dared proponents of the free float theory to name any other country that practices a freely floating exchange rate regime.

3. …and for good reason

According to Emefiele, the current situation Egypt finds itself is the exact reason why other countries, and especially Nigeria, do not consider a free float. “What they do not tell you is that following their currency adjustments; inflation today in Egypt is over 30 percent. Is that what we want in Nigeria?” ThisDay quotes Emefiele as saying.

4. The CBN is already on top of the matter

According to the CBN boss, the apex bank had sat down to understand the peculiar problems leading to the surge in inflation and understand that it is a cost-push inflation- where supply constraints lead to few goods in marketplace- that is responsible for the high inflation. However, the bank has moved to correct this. “In Nigeria, I believe we have cost- push inflation, exacerbated by supply shortages in food, fuels, and FX. And that is why the CBN is supporting farmers across the country through various schemes to increase food supply. We are also very responsive to the needs of fuel importers to ensure availability. And we continue to respond as much as possible to FX supply shortages in the market.” he said.

5. What is being done already worked in other countries and in Nigeria too

Citing South Korea during its economic resurgence and cement as a local example, Emefiele justified the steps taken by his administration, such as the exclusion of certain items from the forex market. According to him, this would serve to conserve forex on one hand, and boost local production on the other. “…here at home, this policy have been used to achieve significant sufficiency in cement, a product whose importation could have been costing us over US$3.2 billion in FX Reserves annually… why should we keep allocating scarce FX to rice importers when vast amounts of paddy rice of comparable quality produced by poor hardworking local farmers across the rice belts of Nigeria are wasted, and farmers are falling deeper into poverty while we export their jobs and income to rice producing nations.” Emefiele opined.