Forex: Economist Tells CBN To Scrap Black Market To Protect Naira

A prominent economist and investment banker, Lai Omotoyo, has urged the Central Bank of Nigeria (CBN) to dismantle the unofficial segment of the country’s foreign exchange (FX) market, citing rampant speculation and its detrimental impact on the naira’s value.

Omotoyo, in a recent interview on Arise TV, expressed concern over the widening gap between the naira’s exchange rates across different markets.

While the official rate hovers around N847.5 to the dollar, the parallel market rate has soared to an alarming N1,145.

Omotoyo attributed this disparity to the activities of speculators and Bureau de Change (BDC) operators in the unofficial market, who he accused of engaging in speculative activities that destabilize the naira.

He advocated for the elimination of the unregulated parallel market, emphasizing that a single, unified FX market is essential for the stability of the naira.

He explained, “When you say you want to float the naira, it is on the basis that you want to have a single market before the floating of the naira was a tag-team fight where you have two people facing two people in a single. Now when you are floating the naira, you are backing one person and you leave only one person in the ring and the opposition still has two persons.

The expert explained that under the former CBN governor, Godwin Emefiele, efforts were being made to defend the naira against the dollar.

Omotoyo continued, “He (Emefiele) was inside the ring with the naira. The naira and CBN were in the ring facing the official market and the black market. What has happened in this regime is that they have removed the CBN considerably and you have only naira in the ring facing the official market and what you call the parallel market.

“This is not going to work, because when you say you want market forces to determine (the exchange rate), it must be a single market. There is nowhere in the world where you have two markets. What is propelling this rise in FX is because of the parallel market and it is not really a parallel market, it is a black market. It is an illegal market where when people can’t get enough from the official market they go to the black market. (Naira will not appreciate) as long as that black market creates a difference of N300 which has been created by these speculators or market cabals.”

The expert accused people who patronise the parallel market because of its attractive rates of being part of the problem of the naira.

Omotoyo explained that the reason why the dollar is scarce at the official window is because an economy cannot grow beyond the businesses operating in the country.
He said Nigeria has a lot of people who have dollars for unproductive means, adding that the real value of the naira is determined by the people who “demand forex for productive use and not for speculation.”

According to him, the value of the naira may continue to fall because everybody is trying to get the naira. However, he argued that the naira will rebound if the market is censored such that only people who need dollars for business get them.

He said, “Close to 60 per cent of the people chasing dollars is for speculative reasons which doesn’t happen in any developed economy. We are a developing economy and we must not allow our economy to be gateless.

“This economy is gateless where speculators just see it as a means of doing business. How can someone say he is a businessman and all he does is just speculate on his own country’s currency? This is absurd.”