Lemo Advises CBN to Resolve Forex Backlog for Enhanced Naira Confidence
Dr. Tunde Lemo, a former Deputy Governor of the Central Bank of Nigeria, has strongly cautioned against adopting a policy of allowing the naira to freely float.
He made this assertion during an online discussion held at the Boiling Point Arena on Sunday, with the overarching theme being 'Addressing the Persistent Instability in the Macroeconomic Environment.'
Dr. Lemo stated, "Presently, I am of the opinion that we should refrain from implementing a free-floating exchange rate system for the naira. When we assess the global landscape, we observe that only a handful of currencies, such as the US dollar, the Euro, and perhaps the Japanese Yen, are genuinely on a free float. Even the Chinese Yuan is subject to management."
He continued by questioning the rationale behind advocating for a free-floating naira, particularly when Nigeria's foreign exchange reserves are not at desired levels and the country is grappling with trade imbalances and deficits in its balance of payments. Dr. Lemo concluded by emphasizing the potential perils of such a move, describing it as a perilous path towards economic instability.
Lemo emphasized the necessity for the central bank to resolve the backlog in the foreign exchange market to instill confidence and bolster the value of the naira.
He articulated, "Another critical step that the new central bank leadership must take is the restoration of confidence within the currency market. Amidst a flurry of regulatory circulars and product bans, the absence of clear market dynamics can lead market participants to act irrationally. When confidence wanes, the challenge lies in its restoration."
Lemo pointed out that there have been defaults and unmet commitments, notably an outstanding backlog of approximately $6.8 billion stemming from swap agreements, forward contracts, and commitments related to airlines and other sectors. Clearing this backlog, he asserted, is essential to reestablishing confidence in the market.
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