Posted by Gbola Subair, Abuja on
THE Central Bank of Nigeria (CBN) on Tuesday announced a major foreign exchange policy, declaring that from August next year, N1.25 will exchange for one dollar.
THE Central Bank of Nigeria (CBN) on Tuesday announced a major foreign exchange policy, declaring that from August next year, N1.25 will exchange for one dollar.
The bank also announced that the Federal Government would phase out N100, N200, N500, and N1,000 notes, saying that N20 notes will be the highest denomination in circulation.
The CBN governor, Professor Chukwuma Soludo, announced these at a press conference held on the 'Strategic Agenda for the Naira."
Soludo said at the end of the exercise next year, the coins that will be available in the economy will be 1kobo, 2kobo, 5kobo, 10kobo, 20kobo coins while the 50kobo note would return, in addition to having N1, N5, N10 and N20 notes.
Disclosing that there would not be N100, N200, N500 and N1000 notes in circulation again, the CBN boss said with the currency restructuring, N20 will now be the highest denomination in circulation.
He said the overall intention was to restructure the entire currency by dropping two zeroes or moving two decimal points to the left from the currency and issuing more coin denominations.
At the current exchange rate, he said the new policy would mean that the naira/dollar exchange rate would be around N1.25 to $1.
Consequently, the apex bank boss disclosed that all naira assets, prices and contracts would be redenominated by dropping two zeroes or two decimal points to the left with effect from this date.
'Effectively, our plan will restore the value of the naira (in the short term) close to what it was in 1985 before the commencement of the Structural Adjustment Programme (SAP) in 1986," Soludo remarked.
The CBN governor said redenomination and reintroduction of totally new currency structure (notes and coins) followed the progress so far made with other reforms and the enabling conditions in the economy.
According to him, they are designed to better anchor inflationary expectations, strengthen public confidence in the naira, make for easier conversion to other currencies, reverse tendency for currency substitution, eliminate lower value, reduce cost of production, among others.
Soludo said as necessary complements to the currency redenomination, the apex bank would embark on adoption of inflation targeting framework for the conduct of monetary policy and liberalised current account.
Also, the Federal Government and the 36 state governments are to receive their monthly statutory allocations in dollars as against the practice of paying in naira.
Soludo disclosed this in Abuja at the press conference. According to him, the new policy followed the approval given by the Monetary Policy Committee (MPC) of the CBN to share part of the Federation Account allocation to the Federal Government in dollars
Professor Soludo, who disclosed that the local governments were excluded from the dollar payment, said that the proportion of the Federation Account to be distributed in dollars would be determined from time to time based on the assignment of the foreign exchange market and the liquidity management requirements of the apex bank.
He said both state and federal governments would be required to open ‘special domiciliary account' with commercial banks of their choice.
The CBN governor said this special account could only be accessed by monetising the balances into naira.
'In other words, the governments cannot withdraw dollar cash but may utilise part of their domiciliary account for settlement for external debt obligations," Soludo said.
Professor Soludo said the new policy thrust was expected to deepen the foreign exchange market, promote financial market development and improve the degree of integration among the domestic markets and with international markets.
'This policy will complement the ongoing programme of allowing Nigerian banks to manage part of our external reserves in collaboration with foreign asset managers," he said.
On the challenges, Professor Soludo said both the CBN and commercial banks would have to manage the risks inherent in foreign exchange trading and deploy a sound system of monitoring matching.
He said the apex bank, in particular, would need to sharpen its skills to monitor and regulate the use of domiciliary account in accordance with the international best practices and the rules and regulations governing the anti-money laundering laws and regulations.
Bismarck Rewane of Financial Derivatives Co. in Lagos said the plan to distribute fiscal oil revenues to the 36 state governments, which receive 24 percent of Nigeria's total income, would be a test of their capacity.
'They will need treasury management skills at a level of government where there is no capacity," he said.