CPPE to CBN: Create autonomous FX window in banking system to curb forex diversion

The Centre for the Promotion of Private Enterprise (CPPE) has urged Yemi Cardoso, the governor of the Central Bank of Nigeria (CBN) to create an autonomous window in the banking system.

This, the CPPE said, is one of the many actions that will end the confidence crisis in the foreign exchange (FX) market and curb the habit of forex flow into the parallel market.

The organisation, in a report released on Sunday, titled; “10 Points Agenda for the CBN Governor,” listed several key decisions expected from Cardoso to restore confidence in the FX market and grow the economy.

In the report, the CPPE said Cardoso is assuming the leadership of the CBN at a very crucial time when “there is a serious confidence crisis in the foreign exchange market fueling an unprecedented speculative onslaught on the naira”.

“The economy is grappling with severe adverse effects of depreciating exchange rate, soaring energy costs, ravaging inflationary pressures, huge backlog of foreign exchange obligations that needs to be cleared and debt service obligations that need to be redeemed. Sadly, these outcomes manifest at a time when the country’s foreign reserves have been substantially encumbered,” the organisation said.

CPPE, founded by Muda Yusuf, said the central bank should employ strategic and transparent intervention in the FX market to minimise volatility, as far as the reserves can support.

The centre also said an autonomous window in the banking system, “where the currency can trade freely without any encumbrances,” should be created to support the investors’ and exporters’ (I&E) window.

“This is necessary to avert the diversion of remittances to other jurisdictions or the black market. We cannot afford to live in denial at this time,” the CPPE said.

The institution also asked that a high priority should be given to clearance of the backlog of FX obligations as part of efforts to restore the confidence of domestic and foreign investors.

‘DEEPEN FINANCIAL SYSTEM AND EXPAND ACCESS TO CREDIT’

The centre also told the CBN to deepen the financial intermediation role of the commercial banks.

“This responsibility entails the mobilization of financial resources from the surplus end of the economy, to the deficit segment of the economy,” the CPPE said.

“Financial conditions remain very tight for the private sector amid challenges of access and cost of credit”.

In addition, the centre asked the CBN to shore up the banking system credit to the private sector, noting that the credit ratio to Nigeria’s gross domestic product is 20.6 percent, relative to the global average of 145 percent, and the sub-Saharan average of 28 percent.

According to the CPPE, the organisation said the banking system is still largely disconnected from the investing community, especially the small businesses in the economy, which have access to a meagre one percent of the credit in the banking system, despite accounting for an estimated 50 percent of the GDP.