A Professor of Finance and Capital market, Prof. Uche Uwaleke says proper supervision of Commercial Banks and Bureau De Change, BDCs in Nigeria will support the Central Bank of Nigeria’s effort to stabilize the foreign Exchange Market and strengthen the naira.
Prof. Uwaleke in an interview with Voice of Nigeria said the CBN needs to strengthen its supervisory role in the foreign exchange market to curb sharp practices.
He said ‘on the issue of exchange rate, there is little the Central Bank can do on the supply side, the CBN doesn’t print dollar, does not determine the price of the dollar but on the demand side the central Bank can continue to work on it, ensure that for example; the Banks are properly supervised such that they don’t engage in sharp practices, ensure that BDCs are also properly supervised and for me the one way to ensure that they are adequately supervise is to even reduce the number of BDCs not by shutting them down but by putting in place policies that will force or compel them to merge or some to submit themselves for acquisition.
‘Any merger and acquisition arrangement within that sector, BDC sector is highly recommended and that can come if the central bank introduces a higher minimum capital requirement. So if the capital base or capital requirement of BDC should increase, that would compel a lot of them to merge or be candidates for acquisition. So the higher capital base for BDCs will succeed in reducing their number.
“So if we have a significant reduction of the BDCS from the over 5,000 to say, a little less of 1,000 that makes it manageable and then Central Bank can be in a stronger position to supervise the BDCs.
“The Capital Market Expert also encouraged the Apex bank to renew the currency swap deal with China to reduce demand for dollar saying China is a major trading partner with Nigeria.
“on the demand, the new team can also consider renewing the current currency swap arrangement we have with China with a view to reducing the demand pressure on the dollar giving the fact that most of our imports come from China. China has dominated our source of import so it will make sense if renew that currency arrangement with China”.
On the supply side, Central Bank under the previous Governor started what is called the RP200 Program which is meant to attract more investment in the country and also boost FOREX earning .
“I also think the new team should continue with that project /program and of course working with the fiscal Authority who are expected to take care of aspects that have to do with port reform and ease of doing business in the economy such that expected forex can come in”.
Prof Uwaleke therefore urge the new management of the Apex Bank to step up banking supervision and work hand in hand with the federal government to end Inflation.
“When it comes to fighting inflation, it is not something the CBN alone can do, well it is the primary duty of the CBN but given the drivers of inflation in Nigeria, my recommendation is that the new governor should work hand in hand with the Finance Minister and Coordinating Minister of economy, to tame inflation and that is because there are also supply side to the inflation.
“Inflationary pressure in the country today is coming more on the food side, issues around food shortages caused by insecurity and high cost of transportation.
“So this are not issues that are within the control of the central bank. So if you have the supply side issues, if you have structural components, they are the responsibilities of the fiscal authorities, not the Monetary authority. The Monetary authority is only there to take care of the Monetary factors, issues, to do with the increase in money supply.
“If there is any evidence that money supply is also contributing to significantly to the inflationary pressure, but it is more of the supply side is more cost push inflation and cost push inflation can only be tackled by the government not the central bank governor. So that is why I said, the new term should consider pausing the rate hike, consider having a monetary policy that is in support of growth, that should lower cost of funds, increase access to credit so that our firms can have access to credit and that can only happen if we have a low interest rate environment.
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