IMF Wants More Autonomy For CBN, Says Nigeria Should Determine FX Policy

The International Monetary Fund (IMF) has said Nigeria does not need any external influence in the choice of her foreign exchange policy.

Speaking in Abuja at an interactive panel on Monetary Policy Management in Challenging Times, at the Nigerian Economic Summit the IMF Resident Representative, Mr Ari Aisen, said Nigerians should determine the foreign exchange regime most appropriate for the country.

While suggesting for a clear autonomy for the Central Bank of Nigeria (CBN) to be able to decide monetary policies in the country, he said issues around foreign exchange regimes were usually complex and decisions of the type to adopt by a country should depend on its priorities, competitiveness and the trade-offs each country was ready to accept.

“The Central bank should be autonomous to take final decision on monetary policies. On Ways and Means it is important to realise that if government wants to provide services, health, education, pay salaries.

“To do that the government has to mobilise revenue. If you do not have revenue, then you will borrow to meet the obligations. If you don’t have the money available at the market, then you need to go to the central bank, if you go to the central bank, the debt is monetised meaning printing money to finance your deficit. That in itself create liquidity problems. If you can’t mop up the extra liquidity that the central bank has injected, then it leads to inflation and creates another problem.

“I hope with that sketch, I was able to demonstrate the relationship between fiscal and monetary policies and revenue mobilization to achieve macro-economic stability and for inflation to be low.

“It is a very difficult question and there are many trade-offs about the choice of the exchange regime, there are pros and cons about any exchange regime. Typically, a fixed exchange rate regime would stabilize prices in a way. That may be welcome in a way but you must have the foreign reserves sufficiently large enough for you to defend the exchange rate that you have fixed.

“On the other hand, you could have a floating exchange rate regime where the market decides the value of the currency. That does not put pressure on reserves because you do not need to intervene in the determining the rate of the exchange rate but it is much more volatile because the exchange rate can fluctuate a lot.

“That has consequences for importers, exporters, economic activities because of the volatility. In between these two difficult opposed policies, you could also have a hybrid in which you could intervene but you allow the exchange rate to fluctuate a little. So what is appropriate for Nigeria.

“First Nigerians will determine what is appropriate for Nigeria because every country has to take its decisions depending on its trade off and priorities and the competitiveness, as well as, the demand and supply of foreign exchange. It is a complex issue but for the ideal regime, we leave it to the country to decide based on its preferences,” he said.