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The recent aggravated depreciation of the Naira has been described as true reflection of the foreign exchange market fundamentals.
The recent aggravated depreciation of the Naira has been described as
true reflection of the foreign exchange market fundamentals.
This was disclosed by the governor of Central Bank of Nigeria (CBN),
Prof. Chukwuma Soludo at the 2008 Annual Bankers' Dinner organised by
the Chartered Institute of Bankers of Nigeria (CIBN).
According to Soludo, "with supply shrinking, we have two options;
either we draw down the foreign reserve to keep the foreign exchange
at the current levels or allow the price to adjust to reflect the
reality of our situation. If something doesn't give, it would
eventually wipe off our industrial base. On the fiscal side,
government expenditure is not going down, salaries are now going down
because oil prices are going down."
Soludo said the price of the exchange rate would have to adjust or
else, we will get back to 1982 stage when many state governments and
federal parastatals could not pay workers salaries for months because
of the shock the economy was subjected to because of falling oil
"You would start to see abandoned projects littering the Nigerian
landscape. In the final analysis, we either adjust now, which is less
painful or draw down our reserve and adjust later with server pains
to everybody within the economy " he said.
"It now a question of timing; when do you adjust- now or later?
Before, I know the size of my wallet and I could make a credible
threat but now I cannot make such threats."
Comparing the depreciation of the Naira in 1982 and now, Soludo
said, "Then what we did was to ban access to foreign exchange. If you
are seen with foreign exchange, it would be confiscated and you will
either be jailed or shot but that also did not stop the balance of
payment crisis. The markets will only respond by speculating and the
exchange rate will only get worse."
Linking the present scenario, the governor said, "What Nigeria is
doing is to simply allow the real fundamental of the foreign exchange
market keep our economy, both externally and internally in balance.
This is to avoid a very painful but necessary adjustment later. The
MPC would meet on Wednesday to deliberate and issue new guidelines on
the foreign exchange market.
"As against 1982, the Nigerian economy is very much more resilient
than then and the economy is very much liberalised but our banks have
an onerous responsibility. Our banking sector cannot afford to
falter. No single bank can afford to falter, and all of us working
together, will make sure that no single bank in Nigeria falter. The
financial system is as strong as the weakest link," he said.
Meanwhile, it will no longer be business as usual for the nation's
banks, as the industry apex self regulatory body, CIBN is set to rid
the industry of quacks, president and chairman of council CIBN, Dr.
Erastus Akingbola has said.
According Dr. Akingbola, "CIBN will from 2009 commence the
enforcement of the CIBN Act, which will include the licensing of
practitioners and vowed that any professional who is not registered
with the institute after the exercise, should be ready to pay the
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