Amid growing concerns about continued naira weakness, especially on the parallel market, the Chief Executive Officer, Economic Associates, Dr. Ayo Teriba, has said that increasing foreign exchange supply is the “only enduring way” to stabilise the local currency.
In a write-up obtained by New Telegraph yesterday, Teriba, who noted that the current exchange rate crisis in the country was caused by foreign exchange supply shortfalls in the wake of the COVID-19-induced global lockdown in 2020, averred that “shortfalls in foreign exchange supply, or for-eign exchange reserves, relative to demand are the most common fundamental sources of exchange rate instability, although confidence-related demand shocks are known to have triggered exchange rate crisis, even in the absence of supply shortfall or aggravate crisis that originally broke out because of supply shortfalls.” He stated that instead of the perennial concerns about the exchange rate, efforts should be geared towards improving forex supply.
As he put it, “the exchange rate is a mere indicator of the balance of supply and demand forces in the foreign exchange market. Those who are discussing exchange rate developments without reference to the unfolding realities of demand and supply are chasing the shadows instead of substance.” The respected economist further stated: “Increasing foreign exchange supply is the only enduring way to narrow or close premiums. We should learn that it is just as futile to try to curtail demand for forex as it is to try to control the price of forex. Supply of forex is the only variable that we should be trying to boost.
“The sooner we refocus our efforts on how to substantially boost foreign exchange supply in Nigeria through balance-sheet-related foreign exchange inflows that are fueled by the unprecedented global liquidity glut, rather than transactions-related foreign exchange inflows that are adversely affected by weakening global commodity prices, the better.