Former Central Bank Deputy Governor Urges Caution in Naira Floating Amid Economic Challenges

Dr. Tunde Lemo, a former Deputy Governor of the Central Bank of Nigeria, cautioned against the hasty implementation of a free-floating exchange rate for the Naira.

The event, themed ‘Persistent unstable macro-economic environment: Any way out,’ saw Lemo raising significant concerns about the potential consequences of such a move.

Lemo’s skepticism stems from the precarious state of Nigeria’s economy, marked by a dearth of foreign reserves and a persistent trade and balance of payments deficit.

He argued that unlike globally recognized currencies like the US Dollar, Euro, and Japanese Yen, many currencies, including the Chinese Yuan, are managed rather than allowed to float freely.

Highlighting the urgency of the situation, Lemo explained the need for the Central Bank to address the substantial backlog in the foreign exchange market.

He pointed out that the lack of clarity and the failure to meet commitments have eroded confidence in the market, posing a significant challenge to the nation’s economic stability.

He said, “One other thing that they need to do is the new team at the central bank needs to restore confidence in the currency market. All these, while they are issuing circulars, banning this product and so on and there is no clarity about the market dynamics, all of these means that the participants in that market will not be rational, and once confidence is lost, how do you bring it back?

“They have been defaulting. Most of the commitments have not been met. You know there is a backlog of about $6.8bn of swap deals, forward deals and commitments by airlines and so on that are not met. They need to clear all of this to bring confidence back into the market.”

In a time when Nigeria faces a complex web of economic issues, Lemo’s cautionary words underscore the importance of thoughtful, well-calculated policies to navigate the nation’s financial future.