The Central Bank of Nigeria (CBN)’s attempt to incentivize the country’s forex market through the so-called “Naira for Dollar” scheme has failed. This is evidenced by the local currency’s plunge of more than 25% since the launch of the incentive scheme in March 2021.
The CBN’s scheme that encourages recipients of cross-border remittances to cash out via formal channels failed to incentivize the forex market and has therefore not achieved the bank’s goal of halting the naira’s depreciation, a report has said.
According to one report in a local news site, Blueprint, since the launch of the Naira for Dollar scheme more than 13 months ago, the naira’s exchange rate versus the U.S. dollar fell by more than 25%. At the time of writing, the naira-to-dollar exchange on the parallel market is 612 naira for every dollar. The official exchange rate has remained at 415 naira for every dollar.
At the time, the CBN’s goal was to lure Nigerians in the diaspora who were reportedly sending remittances via alternative channels, which use the black market exchange rate. By directing cross-border remittances to official channels, the CBN would be able to increase the amount of foreign currency that flows into its coffers. Large foreign currency reserves in turn would be used to support the naira. In March, an economist with the central bank declared that the scheme had achieved its objective and was thus a success.
Indirect Naira Devaluation
Nevertheless, some unnamed pundits quoted in the report insist the scheme alone cannot undo the pricing anomalies caused by inconsistent policies. Some experts and organizations even view the incentive scheme as a form of devaluation of the naira. For instance, Cowry Asset Management is quoted in Blueprint remarking on how the scheme may have sent the wrong signals to the market.
“However, we feel that the CBN’s Naira for Dollar Scheme appears to be another form of Naira depreciation which may have sent the wrong signal to the forex market,” the asset management firm said.
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