Professor Uche Uwaleke, a renowned Professor in the capital market, has voiced his support for the unification of exchange rates in the forex market, citing the benefits of a more transparent system.
In an interview with Social Plus Africa, Prof. Uwaleke highlighted the importance of implementing the unification process carefully to avoid significant distortions in the general price level.
While expressing his support, he also cautioned against a sudden free float of the naira, considering the current weak economic fundamentals and limited sources of foreign exchange.
He emphasized that sustainable capital inflows, particularly from foreign direct investments, are unlikely to materialize in the near term due to factors such as insecurity and an unfavorable business environment in Nigeria.
Prof. Uwaleke pointed out that the recent surge in the stock market could be attributed, in part, to the anticipation of foreign portfolio investments.
However, he cautioned that portfolio investments represent hot money and should not be relied upon as a sustainable source of forex inflows.
To ensure a smooth transition, the professor suggested that the unification of exchange rates should be implemented gradually over a period of time, considering empirical evidence that reforms are more successful when sequenced and implemented in phases.
He stressed the need to strike the right balance and minimize unintended consequences, especially given the simultaneous removal of oil subsidies, which could potentially lead to galloping inflation and increased poverty levels.
While supporting fiscal and monetary policy reforms, Prof. Uwaleke emphasized the importance of careful implementation and the need to address potential challenges to ensure a successful unification of exchange rates in Nigeria’s forex market.
