by Olatunji Saliu
ABUJA, Feb. 23 (Xinhua) -- Nigeria's apex bank this week adjusted the country's foreign exchange policy by carrying out wholesale interventions in the interbank market, apparently in a bid to save the "crazy" naira - the currency of the west African country which falls easily against the U.S. dollars.
In the latest move by the Central Bank of Nigeria (CBN) on Tuesday, the financial institution made 370.9 million dollars available to 23 deposit banks to ease the pressure of access to foreign exchange by Nigerians.
"The apex bank is more than ever ready to support the interbank market by ensuring liquidity and transparency to guarantee efficiency in the foreign exchange market," said the apex bank's spokesman, Isaac Okoroafor.
According to him, a whopping 500 million dollars was offered for sale to the banks, but not all of them provided enough naira backing to pay fully for their respective bid amounts.
With the new move, retail users can have a sigh of relief that they can have access to the dollars through commercial banks for personal and business travels, as well as educational and medical fees, among others.
But the question on the lips of many is; how sustainable the apex bank's new policy can be, as the measure might fail in addressing the underlying challenges affecting the economy and forex market.
The huge pressure of demand and supply had taken its toll on naira/dollar exchange for almost two years now, weakening the naira against the dollar in an economy that is battling to recover from a recession.
The naira began to decline against the dollar in 2014 following a huge setback in foreign currency revenue from oil, Nigeria's mainstay, due to the vagaries in global crude oil price.
The Nigerian apex bank, in its intervention mode, first, had to devalue the naira from about 160 to 176/dollar in November 2014.
In February 2015, the financial institution suspended the dollar auction system and set a new target of 196.5/dollar for the interbank rate, and later increased to 197/dollar.
On June 23, 2015, the apex bank gave a directive which excluded some local-based products from eligibility to access forex in the Nigerian foreign exchange market, a move mostly seen as being directed at encouraging local production.
Thus, the scarcity of the greenback continued to weigh on the exchange rate. At the parallel market, it had first lost value to 240/dollar, changing rates at various times and closing at 520/dollar last Monday before the new policy was announced.
To sustain the new policy, the central bank said it will begin a weekly sale of 1 million dollars to each of the 21 commercial banks in Nigeria at 375/dollar to clear a backlog of demand for retail users and try to narrow the premium between the official and black market rates.
However, it is general knowledge that the exchange market will determine the sustainability of the new policy.
Nigeria's foreign reserves increased to 27.4 billion dollars as of January 19 from 23.8 billion dollars on October 19, 2016.
Financial analysts said the current increases in the reserves may be unsustainable, owing to the nature of the "crazy" naira value and the shortage of dollar supply.
Sheriffdeen Tella, a professor of economics at the Olabisi Onabanjo University in Nigeria's southwestern state of Ogun, said he is not convinced the new policy will not drain Nigeria's external reserves or worsen its exchange rate challenges.
Tella noted the new policy, as good as it seemed, was not a palliative measure and, therefore, could create a serious problem for the apex bank.
"Some Nigerians including the banks will use this opportunity to collect the dollars from the CBN and sell it at the black market," he said.
Convinced that the new policy would spur capacity utilization of manufacturers, Wale Adegbite, chairman of the Manufacturers Association of Nigeria in Ogun State, one of the country's top industrial destinations, said the new foreign exchange policy of the Central Bank of Nigeria would ease the difficulties encountered by Nigerians in obtaining funds for foreign exchange transactions.
Adegbite said with the availability of dollars, many manufacturers would be enabled to open letters of credit and begin production.
"We hope that more of the manufacturers will be able to get dollars as CBN said it has increased the sales of dollars at the foreign exchange market," he said, adding many manufacturers were not producing because they found it difficult to access dollars under the old foreign exchange policy.
Johnson Chukwu, a financial analyst, pointed out that the CBN's policy could best be described as the extension of an existing policy.
He lauded the policy but expressed doubt that it could be sustained.
"We are not also sure that this will address the underlying challenges," he added.
Financial market expert Emmanuel Ukeje said the new policy is very sustainable, explaining that it will address the issue of round-tripping or hoarding, as it allows for school fees and medical fees to only be paid directly to the school or hospital abroad.
Ukeje, who is also a special adviser to the CBN governor, assured that banks will comply with the new directive and not make it difficult, thereby sending customers back to the black market.
"I think the banks will do that because in the past the problem they had with the Bureau De Change (BDC) operators was certifying that these BDCs can be dealt with. And most of them, the banks were scared because they were not sure of the ownership of the BDCs.
"That was why some of them retained but now they have to do it directly. The banks are directly under the supervision of the CBN," he explained.
According to the financial expert, the commercial banks are mandated to comply and render returns on the utilization of the money given them by the apex bank 24 hours after they get that money. Enditem