A varsity don, Prof. Uche Uwaleke, says the convergence of the Nigerian foreign exchange market is desirable for increased transparency in the financial market.
Uwaleke said on Saturday that the CBN should implement the policy in a way that does distort general price levels.
The Director, Institute of Capital Market Studies, Nasarawa State University, Keffi, noted that a free float of the Naira was not advisable, however.
He explained that this is against the background that the economic fundamentals required to support a Naira float were still weak, especially in relation to sources of Foreign Exchange.
“It is rather early to bank on sustainable capital inflows from foreign direct investments due in part to insecurity and the overall uncertain environment of doing business in Nigeria.
“Sudden Naira devaluation may draw foreign portfolio investments which is part of the reason the stock market is surging.
“We also know that portfolio investments are hot money and do not represent a sustainable source of Foreign Exchange inflows.
“I advise that the unification of exchange rates should be implemented over a period of time, however short the period may be,’’ he said.
Uwaleke also said that empirical evidence suggested that reforms were more successful when they were sequenced and implemented in phases.
“This is against the backdrop of the oil subsidy removal which, taken together, can result in galloping inflation and rising poverty level.
“While fiscal and monetary policy reforms are welcome, absolute care should be taken to strike the right balance and minimize their unintended consequences,’’ he said.
The CBN revised the multiple foreign exchange windows in June to simplify the monetary regime.
The decision was largely influenced by Exchange Rate disparity.
The gap between the official and parallel market rate, however, continues to widen as supply-related challenges continue to impact on the Foreign Exchange market and exchange rate stability.
An Economist Intelligence Unit (EIU) report stated that the CBN unified multiple Nigerian exchange rates had led to the largest devaluation of the Naira in history.
The report said that it had significantly narrowed the 60 per cent gap with the alternative market rates, but highlighted the inconsistencies in its application to a more liberal monetary regime.
“Currency access restrictions still apply for a wide range of imports,’’ it stated.
The EIU is the research and analysis division of the Economist Group, providing forecasting and advisory services through research and analysis, such as monthly country reports and five-year country economic forecasts.