The Central Bank of Nigeria’s (CBN) approach to managing exchange rates has drawn criticism from the World Bank once again and caused disagreement among economists and public policy professionals.
According to a paper posted on the World Bank website, the CBN’s method of managing currency rates cost the nation a staggering $144.1 billion between 2017 and the first quarter of 2021.
The CBN’s different exchange rates “function as an implicit tax charged by the CBN on federation revenue,” the institution claims.
A lot of attention has been paid to how the CBN manages Nigeria’s foreign exchange policy.
Despite suggestions for a flexible exchange rate in the official window from a number of organizations, including the World Bank and the International Monetary Fund, the Governor of the Central Bank has insisted on the continued use of the current controlled float system.
A managed floating exchange rate, to put it simply, is a system where currencies fluctuate daily but the Reserve Bank of India and other regulatory bodies may intervene to control and stabilize the value of the currency.
While a floating (or flexible) exchange rate regime is one in which a country’s exchange rate fluctuates in a wider range and the country’s monetary authority makes no attempt to fix it against any base currency.