Gains, pains of multiple exchange rates, by IMF

The exchange rate regime to be adopted by a country is dependent on many factors. They include the economic policy being implemented and the International Monetary Fund (IMF). The regime adopted will come with benefits and consequences, an IMF report has said.

The report titled: “Exchange Rate Regimes in an Increasingly Integrated World Economy”, obtained from the Fund’s website, said the choice of an appropriate exchange rate regime — floating, managed or fixed arrangements—for individual countries will have social and economic implications.

It said these changes include the general increase in capital mobility and the abrupt reversals of capital flow to developing and transition economies.

The report also said there is no single exchange rate regime that is best for all countries in all circumstances. “Member countries continue to have scope to choose the type of exchange rate regime that best suits their needs always with the proviso that the chosen regime must be credibly supported by policies consistent with the choice,” the report said.

Continuing, the IMF document, which was posted on its website, said which exchange rate regime and associated policies are appropriate for a country depend on its particular circumstances.

“While increased capital mobility has been leading an increasing number of countries to either end of the spectrum between firmly fixed rates (or monetary unification) and free floating, intermediate regimes are likely to remain viable and appropriate in many cases,” it said.

However, Renaissance Capital (RenCap), an investment and research firm, has said foreign investors prefer to invest in countries with exchange rate, as against single exchange rate as being practiced in Nigeria.

The investment and research firm, said many foreign investors are still worried about the multiple exchange rates operating in Nigeria, which remain a big challenge to foreign capital inflows.

RenCap’s Global Chief Economist, Charles Robertson, who disclosed this during the RenCap ninth Annual Pan-Africa 1:1 Investor Conference in Lagos, said Nigeria will be better off adopting a single exchange rate.

He said although the foreign investors have increased their interest in the economy, but the level of capital inflows would have been better were the country to adopt a single exchange rate.

According to Robertson, “the main challenges for investors are on the front of liquidity: how can Ghana and Nigeria increase liquidity in the near future?” He said: ”Nigeria is looking better on most metrics, having accelerated growth, a stable currency and rising forex reserves, but needs to improve on bank lending which remains weak.”

He added: “The cyclical story is again improving for much of Africa as commodities pick up. The credit rating downgrade cycle is basically finished. We think Nigeria will have one of the strongest growth accelerations in Africa in 2018, while the currency is well supported for 2018.”

RenCap, an emerging and frontier markets investment bank, said the conference serves as a platform for closed door one–on-one meetings between top global and local investors from across the globe and over 30 corporate representatives to discuss investment opportunities in Nigeria and other fast-growing economies on the continent.

The keynote speakers and panelists are Adedoyin Salami, a renowned Nigerian economist and Executive Director, African Business Research, and Mrs Patience Oniha, Director-General, Nigeria Debt Management Office, among other prominent business and opinion leaders.

CEO Nigeria, Renaissance Capital, Temi Popoola, said: “This conference provides an opportunity to broaden and expand the narrative around investing in West Africa, a long term, broad objective of fulfilling our mission to providing client solutions and ensuring that we remain an innovative and ever-evolving partner to them. We hope to bring more visibility to the region and help facilitate increased capital inflows. We continue to believe Africa will be a $29 trillion economy in 2050, larger than the 2012 combined GDP of the US and the eurozone.”

In her investor address, Oniha, said: “The combination of fiscal and monetary policy strategies adopted by the Federal Government has delivered results on several key parameters – GDP, inflation, external reserves, forex stability, etc. This trajectory is expected to continue. The reinforcement of the ongoing strategy through other policy measures, of which the focus is on generating non-oil revenues, is one of the factors that will boost economic indicators.”

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