Nigeria, Africa’s largest economy, plans to automate all foreign exchange (FX) transactions to prevent arbitrage and speculation on the country’s naira. The move is part of the government’s efforts to reform the FX market and improve liquidity and transparency.
According to the Minister of Finance and Coordinating Minister for the Economy, Mr Wale Edun, who spoke at the 29th Nigeria Economic Summit (NES29) in Abuja on Monday, the automation will enable the authorities to monitor and regulate all FX dealings in the country. He said anyone engaging in illegal or illegitimate FX transactions will face criminal charges and penalties.
Mr Edun also revealed that the government expects to receive $10 billion of inflows in the coming weeks to help ease the FX liquidity crunch that has affected the naira’s value. He said these inflows are from various sources, including foreign investors, multilateral agencies, and diaspora remittances. He added that the government will also introduce incentives to encourage more FX inflows from private sources into the domestic market.
The minister said that these measures are part of a broader review and revamping of the FX market that will be unveiled soon. He acknowledged that the current FX market is inefficient and unstable due to low supply and high demand for dollars. He assured that the government is committed to ensuring the safety and benefits of FX for the economy.
The NES29, which has the theme “Pathways to Sustainable Economic Transformation and Inclusion,” was attended by President Bola Tinubu, who pledged his administration’s commitment to deal with the FX challenges and clear all backlog of pending contracts. The president also reiterated his economic agenda, which includes tackling inflation, removing petrol subsidies, unifying exchange rates, boosting tax revenue, and promoting domestic production.
The naira has been under pressure recently due to dwindling oil revenues, rising inflation, and security challenges. The naira slid to almost 1,000 per dollar on the official market on Oct. 20, while it traded at over 1,200 per dollar on the parallel market. The gap between the official and parallel market rates has created opportunities for arbitrage and speculation.
The government’s plan to digitize the FX market has received mixed reactions from financial experts and stakeholders. Some have welcomed it as a positive step towards improving transparency and efficiency in the FX market, while others doubt its feasibility and effectiveness. Some have also called for more structural reforms and diversification of the economy to reduce its dependence on oil.
The digitization of the FX market is expected to be implemented in phases, starting with the interbank market and extending to other market segments. The government hopes this will enhance confidence and stability in the naira and attract more foreign investment.
Source: Tribune Online
