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HomeBusinessCBN will continue to preserve Nigeria's forex reserves, says Emefiele

CBN will continue to preserve Nigeria’s forex reserves, says Emefiele

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The objectives of the country’s exchange rate policy were to preserve the value of the domestic currency and maintain a favourable external reserves position, according to the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele.

The CBN governor who spoke at the opening of the Regional Course on Exchange Rate Regimes and Policies, organised by the West African Institute for Financial and Economic Management (WAIFEM), said foreign exchange regime seeks to ensure external balance without compromising the need for internal balance and the overall goal of macroeconomic stability.

Emefiele was represented at the capacity-building course by the CBN Deputy Director, Monetary Policy Department, Omolara Duke.

He said the overarching goals of the apex bank include achieving exchange rate stability that ensures a viable external sector, anchoring inflationary expectations and improving and supporting economic growth.

The thrust of exchange rate management by the bank, he said was to allow the market system to determine the exchange rate parity in an efficient manner devoid of the activities of speculators and rent-seekers.

He pointed out that the bank’s choice of exchange rate regime had at all times been determined by the prevailing economic fundamentals, adding that it was not uncommon that the dynamics of the external and domestic economy lead to a change in regime.

The bank currently operates a free-float regime, whereby it intervenes in the market whenever necessary.

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Emefiele noted that for developing economies including Nigeria where the demand for imports remained high, an appropriate exchange rate regime was required to safeguard capital outflow and ring-fence the external reserves.

He the choice of an exchange rate regime by a country was largely dependent on the assessment of its specific macroeconomic objectives, state of economic development and the focus of its foreign exchange policy.

“For the advanced economies, the exchange rate regime galvanises towards the floating regime, as the majority of them have convertible currencies and are therefore less exposed to the vagaries of currency fluctuations.

“Developing economies are more cautious towards protecting their economies from adverse movements of convertible currencies which they trade with and therefore avoid regimes that will expose them to speculative attacks and currency crisis and desire to promote long-term growth,” he said.

He added, “The choice of their exchange rate regime consequently tilts toward preventing massive capital inflows and currency crises and promoting trade.

“The choices of an exchange regime that will achieve exchange rate stability, capital mobility, and independent monetary policy simultaneously often leave a decision to achieve two out of these three outcomes. An exchange rate regime, therefore, must be credible and reflect the underlying fundamentals of the economy.

“Countries rarely take the extremes of the regimes, that is the fixed or the free-floating except in certain cases. Most countries exhibit some control over their currencies within the broad spectrum of the two extremes.”

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