Allow banks to control the dollar exchange rates: IMF beckons on CBN

By: Damian Okonkwo

The International Monetary Fund (IMF) has called on the Central Bank of Nigeria (CBN) to re-examine its foreign exchange (FX) management policy which allowed the apex banks to control the dollar exchange rates within the country. This had left the commercial banks sourcing to obtain dollars for their clients.

Addressing the present FX crisis in Nigeria in its 2022 Article IV Consultation presented during its official visit to the country, the IMF called on the CBN to allow the commercial banks to control the dollar exchange rates including the buy-sell prices as this will help reduce the dollar scarcity and improve the FX supply in the market. According to the IMF:

“In the medium term, the CBN should step back from its role as main forex intermediator, limiting interventions to smoothing market volatility and allowing banks to freely determine forex buy-sell rates.”

Thus, the IMF believed that allowing commercial banks to control the exchange rate will further increase the FX inflow into the country.

Speaking further on this, the IMF explained that the banks maintaining a uniform and market-clearing FX exchange rate is very necessary for boosting foreign investors' confidence in the economy.

Nonetheless, IMF stated that the continued present FX shortage, and practice of maintaining a stable exchange rate by the CBN amidst a weak Naira due to high inflation and limited debt servicing policies will all the more trigger fears of more future devaluation for the Naira amongst investors.

Describing this, the IMF stated that “These factors hinder much-needed capital inflows, encourage outflows, and constrain private sector investment.”

Above all, the body advised the Nigerian government to consider reducing its tax rate to fair levels at par with the standards of the Economic Community of West African States (ECOWAS).