Free float exchange rate elitist, wrong, Emefiele insists
THE Governor, Central Bank of Nigeria (CBN), Mr Godwin Emefiele has insisted that adopting a free float exchange rate for the Naira is both elitist and wrong.
Specifically, he observed that the decision to adopt a managed-float exchange rate regime that does not allow market forces determine the Naira exchange rate was the best for Nigeria.
Emefiele made this remark in response to critics who believe that the exchange rate of the Naira should be determined by the forces of demand and supply.
At a roundtable session on “Developing a Roadmap for Greater Growth and Job Creation in Nigeria,” held in Lagos on Saturday, Emefiele maintained that if the Naira is allowed to float, the poor and low income earners will suffer more in form of high inflation.
To this end, he noted that he was very comfortable staying on the side of the weak, vulnerable, and poor masses and protecting their purchasing power, because as far as “I am concerned, this idea of allowing a free float is both elitist and wrong. My final point on this is that academic thinking and institutional positions on this matter is now shifting in our favour.”
He said: “What better economic benefit would a young civil servant receive from us than knowing that when she returns to the market every month, she is sure of buying just about the same amount/ quantity of food and other goods she bought the previous month?”
To support his views, the CBN governor noted that for nearly a decade, a brilliant Harvard Professor of Economics kept publishing several papers showing that fully flexible exchange rates do not always lead to optimal economic outcomes.
According to Emefiele, in a December 2017 article titled: “The Elusive Benefits of Flexible Exchange Rates”, the university don concluded:
“There is no denying that flexible exchange rates provide valuable monetary-policy independence. But, in a dollar denominated global trade environment, the ability of a floating currency regime to support full employment is severely limited.”
He stressed that less than one year after Professor Gita Gopinath published this particular piece, the International Monetary Fund (IMF) hired her as their prestigious first female Chief Economist and Director of Research.
He explained that by this act, even the IMF now supports some form of interventionist managed float especially for countries that are grappling with difficulties.
For instance, at the height of the struggles, Argentina faced with stabilising its currency, the IMF extended a loan package of about US$57 billion to them, and approved a daily auction of about US$60 million by the Central Bank to defend the Argentine Peso.
The IMF he said, supported this.
He said the event has been scheduled to allow the organized private sector, not only to air their views but also to provide some inputs into the CBN’s roadmap to be unveiled in due course for achieving greater Growth and Job creation in Nigeria.