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Can CBN's forex regulation work?
In efforts to reduce forex woes, Central Bank of Nigeria's has instructed Bureau De Change operators to sell forex at no more that 400 to the dollar. Can this work and how will the CBN regulate operators across the country? Zeal Akaraiwe, CEO, Graeme Blaque Advisory joins CNBC Africa for more.
Thu, 10 Nov 2016 14:15:21 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- Distinction between economic issues and financial market problems
- Impact on market dynamics and liquidity constraints
- Questioning the Central Bank's regulatory approach and implications
The Central Bank of Nigeria's recent directive instructing Bureau De Change operators to sell forex at no more than $395 to the dollar has sparked a debate on the practicality and effectiveness of such a regulation. The move comes as part of the Central Bank's efforts to address the ongoing forex issues in the country and stabilize the forex market. However, experts and stakeholders are divided on whether this regulation can work and how it will impact the broader economy.
Zil Akaraiwe, CEO of Graeme Blaque Advisory, shared his insights on the matter during a recent interview on CNBC Africa. Akaraiwe raised critical questions about the feasibility of regulating forex prices in a market-driven economy. He highlighted the importance of understanding the underlying economic problems and the need for expertise to address them effectively.
One key point raised by Akaraiwe is the distinction between economic issues and financial market problems. He emphasized the importance of attracting liquidity to address the current liquidity constraints in the market. By stifling liquidity providers like Bureau De Change operators, the Central Bank risks exacerbating the liquidity shortage, leading to unintended consequences.
Another key concern raised by Akaraiwe is the potential impact on market dynamics. By imposing a fixed price for forex transactions, the Central Bank risks creating artificial shortages and driving transactions underground. This could further strain the forex market and disrupt the balance between supply and demand.
Moreover, Akaraiwe questioned the Central Bank's approach to market regulation, particularly in light of the recent actions against International Money Transfer Operators (IMTOs). He stressed the importance of incentivizing liquidity inflows and adopting a more strategic approach to address the underlying challenges.
In conclusion, the effectiveness of the Central Bank's forex regulations remains uncertain. While the intention to stabilize the forex market is commendable, the approach raises practical challenges and could have unintended consequences. As the debate continues, stakeholders await further clarity from the Central Bank on its strategy and the potential implications for the broader economy.
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