L
LequteMan
Guest
According to this piece from Nairametrics, Central Bank Governor, Godwin Emefiele, should emulate a certain Asian country as a solution to the continued depreciation of Nigeria's local currency. Excerpts:
Nigeria’s Central Bank Governor Godwin Emefiele has a credibility problem. The naira is tanking despite futile attempts to hold it at a nominal level of N199/$ apparently arrived at by pulling that number (N199) out of a hat since it has no macroeconomic relevance, anchor or bearing.
The Real Effective Exchange Rate (REER) or inflation adjusted UDS – NGN is well above N400/$, while a purchasing power parity estimate or big Mac index (using Johnny Rockets as a proxy), would give u a USD/NGN closer to N320/$.
It doesn’t make sense to fix the naira at N199 to $, when nobody can get it at that rate. The problem with the CBNs current policy (or lack of it) is the inability to use flexibility or volatility to its advantage.
Using the markets will enable the CBN free up pressure on the naira like it is done everywhere else in the world, a case in point beingVietnam.
The State Bank of Vietnam reduced the local currency the dong’s reference rate in January 2016 for the first time since August, saying that it is moving to a more market-based methodology in setting a daily reference rate versus the dollar.
The new methodology the Vietnamese Central Bank has adopted will calculate the daily reference rate based on a weighted average ofdong prices in the interbank market the previous trading day.
The Vietnamese State Bank will also introduce three-month forward sales of U.S. dollars to commercial banks at the daily rate plus an additional 1 percent.
Read full article
Nigeria’s Central Bank Governor Godwin Emefiele has a credibility problem. The naira is tanking despite futile attempts to hold it at a nominal level of N199/$ apparently arrived at by pulling that number (N199) out of a hat since it has no macroeconomic relevance, anchor or bearing.
The Real Effective Exchange Rate (REER) or inflation adjusted UDS – NGN is well above N400/$, while a purchasing power parity estimate or big Mac index (using Johnny Rockets as a proxy), would give u a USD/NGN closer to N320/$.
It doesn’t make sense to fix the naira at N199 to $, when nobody can get it at that rate. The problem with the CBNs current policy (or lack of it) is the inability to use flexibility or volatility to its advantage.
Using the markets will enable the CBN free up pressure on the naira like it is done everywhere else in the world, a case in point beingVietnam.
The State Bank of Vietnam reduced the local currency the dong’s reference rate in January 2016 for the first time since August, saying that it is moving to a more market-based methodology in setting a daily reference rate versus the dollar.
The new methodology the Vietnamese Central Bank has adopted will calculate the daily reference rate based on a weighted average ofdong prices in the interbank market the previous trading day.
The Vietnamese State Bank will also introduce three-month forward sales of U.S. dollars to commercial banks at the daily rate plus an additional 1 percent.
Read full article
