Business
Why Naira is undervalued – Financial expert, Gbolade
Idakolo Gbolade, Chief Executive Officer of SD & D Capital Management, said one of the impacts of the recent floating of the Naira in the foreign exchange window is the undervaluation of the country’s currency.
Gbalode disclosed this on Friday in an interview with the DAILY POST.
Recall that Bank of America had said due to the federal government’s recent forex reforms, the Naira has been undervalued by 12 per cent, standing at N680/$1.
In his reaction to the development, Gbolade explained that operational reforms in forex always lead to currency undervaluation; the same was the case in China a few years ago.
He noted that this is because the forex reforms introduced by the Central Bank of Nigeria on June 14 have allowed market forces to determine the currency’s value based on demand.
He stated that the Nigerian government is using China’s model.
According to him, on a short and long-term basis, the steps taken by President Bola Ahmed Tinubu’s government would start yielding positive results.
“The policy of exchange rate reforms always leads to the undervaluation of a nation’s currency, as was implemented by China a few years ago. This process allows market forces to determine the currency’s value based on demand and attracts foreign investment due to its trading flexibility. The Nigerian government using the China model will gain the following in the short run and long term,” he stated.
He identified ten likely impacts as follows:
“Determine the actual debt position of the country in foreign currency; ascertain the actual position of our foreign reserves
“Arrive at the actual trade balance between Nigeria and its foreign partners; take budgetary decisions that are near accurate
“Encourage foreign investors due to exchange rate flexibility.
“Formulate policies that would positively impact the economy regarding trade and investment; boast trading activities in the Nigeria stock exchange.
“Near or total elimination of forex arbitration by a few unscrupulous individuals; steer the country on the way to prosperity and lead to the eventual strengthening of the Naira when there are increased foreign inflows.”
