Former Deputy Governor of the Central Bank of Nigeria, Dr. Tunde Lemo, has cautioned against adopting a free-floating exchange rate system for the Nigerian naira.

The event, titled ‘Persistent unstable macro-economic environment: Any way out,’ saw Lemo express his reservations about this particular monetary policy.

Lemo argued, “It is not advisable to allow the naira to freely float at this time. When you consider the global landscape, how many currencies are actually on a free float? With the exception of internationally recognized and convertible currencies like the US dollar, Euro, and perhaps the Japanese Yen, even the Chinese Yuan is subject to management.”

He further questioned the wisdom of advocating for a free-floating naira in the absence of sufficient foreign exchange reserves and given the current trade and balance of payments deficits, stating, “I believe that such a move would be a hasty decision, akin to economic suicide.”

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Lemo stressed the importance of the Central Bank addressing the backlog in the foreign exchange market to restore investor confidence and bolster the value of the naira.

He urged, “Another crucial step that the new leadership at the central bank must take is to rebuild trust within the currency market.

The lack of clarity surrounding market dynamics, as demonstrated by the issuance of circulars and bans on certain products, has led to irrational behavior among market participants.

Once confidence is eroded, it becomes a significant challenge to reinstate it.”

He also highlighted the issue of unmet commitments, pointing out that there is a backlog of approximately $6.8 billion related to swap deals, forward deals, and commitments from airlines and other entities that require attention.