Nigeria’s current foreign exchange policy encourages profiteering from arbitrage and serves as a disincentive for business activty and foreign investment, Vice president Yemi Osinbajo said in a statement on Tuesday.
The exchange rate management practices of the Central Bank only favors those able to get the U.S currency at the official rate of 410 naira per dollar, only to sell at the parallel market rate of 560 naira per dollar, Prof. Osinbajo said in an emailed statement. The “massive difference discourages doing proper business, when selling the dollar can bring in about 40% profit,” Osinbajo said.
The Vice President’s position sets him on a collision course with the central bank in Africa’s largest economy, which maintains a tight control over the exchange rate of the naira by keeping it within a preferred range. The local currency unit has been devalued three times since March last year in a process the central calls managed-float regime Blomberg reports.
Only authorized lenders are allowed to sell dollars to end-users at central bank-controlled rates. Those unable to get the greenback from the authorized market, patronize the parallel market where money traders source and sell the dollars at rates freely determined by availability and demand. This has created arbitrage opportunities between the official and the parallel market rates.
The central bank should implement measures that would increase the supply of foreign-exchange in the market rather than simply managing demand, which opens up irresistible opportunities for arbitrage and corruption, Osinbajo said. Only the adoption of “market reflective exchange rates” will increase the supply of dollars and improve the exchange rate, he said.