Adedapo Adesanya
By Adedapo Adesanya
On Thursday, the Central Bank of Nigeria (CBN) lifted an eight-year restriction on importers seeking to get foreign exchange (FX) from the Nigerian Foreign Exchange Market (NFEM) for the importation of 43 items into the country.
This was among other policy issues that the apex bank said would promote orderliness and professional conduct by all participants to ensure market forces determine exchange rates on a Willing Buyer – Willing Seller principle.
On June 23, 2015, the CBN put 41 product categories on a list of items not valid for FX at the official market, later on, it added two more product categories bringing the total of imported product categories restricted from accessing FX to 43.
The embargo aimed at reducing foreign exchange demand for products that could be locally produced, improving employment generation, and conserving foreign reserves failed.
According to the central bank, the FX restrictions instituted by the Godwin Emefiele-led CBN pushed importers into the parallel market, contributing to the surplus demand for FX. This weakened the parallel-market exchange rate, pushing up prices.
The restrictions had implications for inflation, causing the prices of affected goods to increase.
Now with the restrictions lifted, it said this could also be advantageous for the country as it would strengthen its monetary policy tools to become more effective it would help create a unified, well-functioning market for FX, where pricing is based on a willing buyer and willing-seller system.
According to the CBN, “The willing-buyer and willing-seller system allows the exchange rate to adjust to clear the market and ensure that there is always supply.”
In recent months, the widening premium between the official rate and the parallel market indicates that the rate has not been setting a clearing price due to the pressures caused by a lack of FX supply.
It was disclosed that importers of these products rely on the parallel market to source FX for importing these goods, and “This puts additional demand pressures on the parallel market, thereby widening the gap with the official rate and permanently segmenting the market.”
By removing these restrictions, the CBN says it eliminates the need for importers of these products to go to the parallel market, reducing the pressure on the Naira.
