Uwaleke Urges FX Rates Unification without Massive Distortions in Price Level

Ndubuisi Francis in Abuja

The President of Association of Capital Market Academics of Nigeria (ACMAN), Prof. Uche Uwaleke, has advised the Central Bank of Nigeria (CBN) to ensure that the ongoing unification of the exchange rates of the naira does not cause massive distortions in the general price level.

Uwaleke, also former Commissioner for Finance in Imo State, expressed his support for the coalescing of the rates, noting that it would help forex market to be more transparent.

He expressed the views in a position paper he made available to THISDAY prior to the unification of the rates last Wednesday.

Uwaleke, a former Head of Department, Banking and Finance, said: “Let me say upfront that I support the unification of exchange rates which makes for a more transparent forex market.

“But I think that the CBN should implement that in a way that does not cause massive distortions in the general price level.

“In this regard, a sudden free float of the naira is not advised given that the economic fundamentals required to support a naira float are still very weak especially in relation to sources of forex.”

He noted that it is rather early to bank on sustainable capital inflows from foreign direct investments due in part to insecurity and the overall inconducive environment of doing business in Nigeria.

“This sudden naira devaluation may draw foreign portfolio investments which is part of the reason the stock market is surging.

“But we also know that portfolio investments are hot money and do not represent a sustainable source of forex inflows.

“In consideration of this therefore, I would advise that the unification of exchange rates should not be a one step process but should be implemented over a period of time however short it may be,” he explained.

According to him, empirical evidence suggests that reforms are more successful when they are sequenced and implemented in phases. This is against the backdrop of the oil subsidy removal which, taken together, can result in galloping inflation and rising poverty level.

Uwaleke, Nigeria’s first professor of capital market, admonished that while fiscal and monetary policy reforms are welcome, absolute care should be taken to strike the right balance and minimise their unintended consequences.