TheNewsGuru

Tag: Naira

  • Naira Loses 25 Kobo at Investors Window, Trades N362.77/$

    The week ended on Friday, October 4, 2019 bearish for the local currency at the Investors and Exporters (I&E) segment of the foreign exchange market.

    Going by data sourced from the FMDQ, the Naira depreciated on Friday against the Dollar by 25 Kobo or 0.07 percent to trade at N362.77/$1 compared with N362.52/$1 recorded on Thursday.

    This came on the back of pressure on the domestic currency yesterday as the daily market turnover at the market segment spiked by 209.5 percent or $213.66 million to $315.64 million.

    An analysis of the Naira performance at other segments showed that the local currency closed flat against other foreign currencies being traded at the FX market.

    For instance, the domestic currency was flat at the parallel market against the Dollar. It also remained unchanged against the British Pound Sterling and the Euro after rising on Thursday by N5 and N3 respectively.

    The Naira/US Dollar closed flat at N360/$1, N450/£1 and N390/€1.

    The Central Bank official Interbank Naira/USD exchange also rate remained flat at N307.00/$1.

  • Desist from abusing Naira notes, CBN warns Nigerians

    The Central Bank of Nigeria (CBN), has appealed to Nigerians to stop defacing the naira, describing it as a national identity and symbol, which must be kept neat.
    Dr Isaac Okorafor, the CBN Director of Corporate Communication, made the appeal at a programme tagged “CBN Fair’’ on Thursday in Osogbo.
    Okorafor said the way and manner people were abusing the naira was a source of concern to the apex bank.
    Represented by Mr Samuel Okogbue, an Assistant Director in the bank, Okorafor said the naira was a symbol of nationhood which must be respected.
    “We don’t have any other currency than the naira and we must respect it.
    “The naira is our identity, pride and symbol of nationhood and we must handle it with care.
    “Don’t spray it, write on it but rather respect it. Abusing the naira is a criminal offence which attracts penalty.
    “Just the way we respect our national flag, we should respect the naira as well.
    “It is sad the way and manner people are abusing the naira by way of writing on it, spraying it at a party or squeezing it.’’
    Okorafor appealed to Nigerians to always handle the naira with care and keep it safe and neat.
    Speaking on complaints by some customers on arbitrary deductions on their accounts, he advised them to always ask questions whenever they noticed any abnormally or activities on their accounts.
    “The provision of the revised guide on bank charges is that banks are required to provide their customers free statements of account on a monthly basis.
    “This means you have a right to get your monthly statement of account from your bank at no cost,’’ Okorafor said.
    Okorafor also urged Nigerians to always patronise made in Nigeria goods, saying this would help in creating job opportunities.
    He said it was worrisome the way Nigerians were patronising foreign goods at the expense of local products.
    Okorafor said for naira to gain stability, Nigerians must cultivate the habit of patronising made-in-Nigeria goods.
    On the CBN anchor programme, he said the programme was aimed at helping local farmers to increase production and supply of Feedstock to processors, reduce importation and conserve Nigeria’s foreign reserve.
    Okorafor said the programme was aimed at reducing poverty among small holderfarmers and to create jobs.

  • Rejoinders: Can CBN save the Naira and save Nigerians?, By Henry Boyo

    Rejoinders: Can CBN save the Naira and save Nigerians?, By Henry Boyo

    Henry Boyo
    Public rejoinders to newspaper columns and opinions may often provide useful feedback on how well the message is understood by the reading public. Evidently, not every critic of an article will find the time or inclination to send rejoinders which may serve as a barometer for the understanding between the reading public and the messenger.
    Admittedly, some rejoinders could be totally off track or even aggressively partisan, and abusive. Nonetheless, the columnist must remain objective and truthful to recognise any merit, expressed in his critic’s intervention.
    The article titled, “Can CBN save the naira and save Nigerians” was published a week ago, and that article, incidentally, elicited rejoinders from a reader of The PUNCH and another reader from Vanguard respectively. Hereafter, both rejoinders will be published, while this writer’s attempt to resolve differences between the author and readers’ positions will follow thereafter.
    Nonetheless, the authors of both rejoinders are commended for sharing their concerns on this writer’s prescriptions for the recovery of the naira and Nigeria’s economy. The first rejoinder to the aforementioned article was a certain William Norris, who noted as follows:
    “I’ve tried for years to understand what policy you support. I don’t know if you want devaluation, free float or a continuation of the current framework. Do you want (a) strong naira or a weak one? You’ve been persistent in spreading your articles all over but you give no enlightenment whatsoever. At the very least, make your writing less dense so that lay people like me can at least follow your reasoning. Blowing big grammar is not (an) equivalent to education for your audience. Thanks.”
    This writer most certainly regrets any agony or discomfort to William Norris, in his sustained efforts to grasp the kernel of this column’s ceaseless recommendations for the vibrant renaissance of Nigeria’s economy, particularly as it relates to inflation and exchange rate management.
    This column has persistently declared that further devaluation of the naira is totally unacceptable since it is irrefutable that the history of deepening mass poverty in Nigeria loyally correlates the naira trajectory from about 50Kobo=$1, in the 1970s, to the present odious level of N305-360=$1!
    Secondly, since the currency free-float mechanism is internationally proved best practice in successful economies, this writer also advises that “if Nigeria wants to be strong and fly as an eagle,” we should also adopt the modus operandi of progressive eagle economies. In fact, Nigeria’s economy will continue to falter and poverty will further deepen nationwide, as already witnessed, if the CBN continues as the standard practice to auction dollar rations in a market that the same CBN readily admits to be eternally deluged with naira surplus. Predictably, excess supplies of any commodity, whether naira or tomatoes, will invariably attract cheaper prices! In fact, an inexplicably very weak naira rate clearly remains the major driver of industrial dislocation and increasing unemployment and poverty in Nigeria!
    Notably, this writer has forever decried the adoption of the strategy of auctioning dollar rations in a market that is irredeemably chocked with oppressive surplus naira for determining the naira exchange rate. Invariably, any item put on auction will be sold to the highest bids; so, it is not difficult to recognise that it is treason for the CBN to auction any foreign currency against its own naira, in a market with extremely surplus naira.
    Instructively, free-floating exchange rate is still the best practice strategy for rate determination in those successful economies, to which our youths and professionals flee to, to guarantee a more secure and comfortable lifestyle. Nevertheless, it would be foolhardy to float the naira in a market which “eternally” suffers the oppressive inflationary burden of perennial naira surplus! Invariably, Nigerians can forget any prospect of economic recovery, let alone growth if the naira is floated, as Nigeria’s odious crown of the world’s poverty capital will inevitably remain permanent!
    Conversely, a stronger naira will increase the naira’s purchasing power and to stimulate consumer demand, which will in turn, instigate production and more job opportunities to gradually reduce the related horrendous level of insecurity. Invariably, therefore, any agenda for a weaker naira is not a viable option, as the related challenges are clearly apparent.
    Once again, my apologies to William Norris for unintentionally “blowing big grammar,” which might have made it difficult for some readers to comprehend the related monetary analysis in last week’s article. In fact, I thank Norris for bringing his dilemma to my attention as we all know the futility of winking at a lady in the dark!
    The second rejoinder is from the Vanguard Newspaper, where one Samuel Okezie also commented as follows:
    “The writer ignores the more important point that Ghana and Nigeria have very little to sell to the world to earn foreign currency. That is the root of the problem. We don’t earn enough foreign currency and do not manufacture locally enough, thereby making the economy heavily reliant on forex for imports. Obsessing about managing the scarce forex we earn and speculating on fraud and abuse of the system do not negate the fact we have a huge import demand. The winning strategies are to aggressively support our local manufacturers; improve skills as there are little skills; emphasise more on skills than just going to a university; encourage entrepreneurship; and, yes, imports of non-essential items should be very expensive.” – Samuel Okezie
    From the foregoing, Okezie has identified the heavy reliance on “scarce” forex for our huge import demand, and also fingered the relatively modest output from local industries as the causes of a weak naira exchange rate. Okezie may be right, but it is also undeniable that Nigeria’s real sector has remained and will remain backward and less productive, so long as cost of borrowing remains uncompetitive, at well above best practice rates of two-seven per cent in successful economies everywhere! Furthermore, with double-digit annual inflation rates, the purchasing value of all incomes, invariably, becomes halved every four-five years, with an inevitable repressive impact on the very critical facilitator of consumer demand, which systemically instigates the appetite of manufacturers to produce and expand capacity with increasing job opportunities in tow, if they can also borrow at cheaper rates below seven per cent to satisfy expanding market demand!
    Predictably, therefore, double-digit inflation rates and very high cost of funds will induce rising unemployment, while Nigeria’s industrial output will continue to remain uncompetitive and induce factory closures and deepen unemployment, as cheaper import substitutes replace local production.
    In effect, with such an inherent disruptive framework, Nigeria’s industrial sub-sector will, forever, remain comatose. Furthermore, so long as inflation and cost of borrowing steadfastly remain above five per cent, Nigeria’s industrial output will also remain uncompetitive against the prices of import substitutes and we will never earn sufficient forex to pay for our imports. This stark reality has invariably constrained meaningful and inclusive economic growth since 1985!
    Furthermore, since inflation is, notably, the main driver of high interest rates, (as it is not rational for anyone to lend below the rate of inflation), it is compelling that the starting point to Nigeria’s economic renaissance must be the object of bringing down inflation, below three per cent to promote consumer demand so that manufacturers and ALL businesses can also borrow below seven per cent to satisfy increasing demand for goods and services and create more jobs!
    Evidently, however, the inflation rate will remain irrepressible so long as the perennial challenge of surplus naira in Nigeria’s money market subsists! It is also indisputable that Nigeria’s eternal naira liquidity excess which drives higher rates of inflation is, in fact, the product of the CBN’s deliberate substitution of naira allocations for monthly distributable dollar denominated revenue. Expectedly, therefore, the higher the dollar export earnings, the higher will ultimately be the level of excess naira supply and the greater will be the threat of inflation, higher cost of borrowing and weaker naira rates!

  • Can CBN save the Naira and Nigerians?, By Henry Boyo

    Can CBN save the Naira and Nigerians?, By Henry Boyo

    The Naira exchange rate has suffered severe battering in recent times and depreciated from N90=$1 (PM) in 1999 to about N197=$1 in 2014, even when our national experience, clearly suggests a close correlation between deepening poverty and weakening Naira exchange rates.

    Evidently, the unyielding Youth exodus from Nigeria, and the mass migration of skilled professionals to more prosperous economies, certainly took root as the Naira rate plummeted from 50kobo before 1975 to almost N200=$, despite our relatively more bountiful average export dollar reserves in 2016. Furthermore, more than 100 million Nigerians, reportedly, also now live below the poverty benchmark of $2/day (N12,000/month), while, our erstwhile bubbling industrial landscape, has shrunk significantly to become less competitive, as serial Naira devaluations have driven higher production cost.

    Interestingly, however, the gradual collapse of the manufacturing subsector and the consequent explosion in unemployment, clearly, do not support the popular belief that weaker Naira exchange rates drive economic diversification and promote export of Made-in-Nigeria goods. Consequently, Nigerians must be wary of any persuasion that prescribes further Naira devaluation as the antidote to our beleaguered economy.

    Historically, CBN, compulsively, devalued the Naira rate to bridge widening gaps between official and parallel exchange rates, even when these gaps were knowingly caused by the contrived, monopolistic market dynamics of demand and supply. Arguably, if unrestrained dollar demand, further, pushes parallel market rates well above N300=$1, this would seriously challenge CBN’s mandate for price stability; nonetheless, CBN may again, unwittingly, jerk up the official rate above N300 to remove the embedded ‘subsidy’ from the prevailing arbitrarily fixed, official Naira exchange rate, so that the dollar price would rise and dampen demand pressure while also minimising rent seeking opportunities!

    Regrettably, nonetheless, a 50 per cent devaluation to about N300=$1 would severely deplete all Naira income values and induce panic amongst Naira income holders, who would hurriedly seek to protect their income from further devaluation; sadly, this rational response would, in turn, instigate more dollar demand. Ultimately, if CBN fails to restore public confidence in Naira, as a safe store of value, another widening gap, between official and parallel market Naira exchange rates will again evolve and sustain serial Naira devaluations.

    Incidentally, the Ghanaian currency, the CEDI followed a similar suicidal trajectory from 1Cedi=$1 to eventually exchange for 10,000 Cedis before the 4 decimal redenomination of that currency in 2007; regrettably, however, a decade or so thereafter, the Ghanaian authorities have still failed, abysmally, to control excess CEDI supply in the money market while the New Ghana Cedi, inevitably, presently trades above 4 New Ghana Cedis i.e. over 40,000 old Cedis, to a dollar. Consequently in 2015, the IMF provided over $900m emergency loan, to reduce Ghana’s dollar deficit and protect the Cedi exchange rate; remarkably, however, the end of the travails of the Ghanaian currency still remains out of sight.

    Clearly, Emefiele, must be concerned that the Naira does not also mirror the fortunes of the CEDI; indeed the forex controls that CBN announced in January 2016 are clearly foraging attempts to protect the Naira value and save more Nigerians from falling below the poverty benchmark. The million Naira question, however, is whether or not CBN’s money market control measures can effectively reduce the pressure of dollar demand to stablise or indeed improve the Naira exchange rate?

    Curiously, in his defence of the ban of almost 3,000 Bureau de Change (BDCs) from official forex allocations in January 2016, Emefiele, expressed grave concern that “BDC operators had abandoned the original objective to serve retail end users who need $5000 or less”. Conversely, according to Emefiele, “the currency dealers have become wholesale dealers in foreign exchange to the tune of millions of dollars per transaction,” while they allegedly, “criminally, thereafter, use fake documentations, such as passports, etc to render weekly returns to CBN.” It is not clear how much tax was generated from these heavily subsidized mega transactions! Inexplicably, nonetheless, no known BDC operator has so far been prosecuted for any wrongdoing!

    It is bewildering also, that despite of the host of eminent intellects and IMF’s regular oversight, the Apex bank, in Emefiele’s words, ONLY LATELY recognized, that “Nigeria is the only country in the world where a Central Bank sells dollars directly to BDCs!” It is equally baffling that for over ten years, no one wondered, not even the equally star studded Monetary Policy Committee and our well travelled and exposed media practitioners, questioned this strategic aberration or, why the number of registered operators rose rapidly from “a mere 74 in 2005 to 2786, after CBN began direct forex sales to BDCs”.

    Equally worrisome, also, is CBN’s incredibly belated realisation, despite several articles by this writer and related discussions in various public media, since 2004, that BDCs provide a ready conduit for money laundering, round tripping, as well as the funding of unauthorized imports which challenge the competitiveness of local industries. See www.lesleba.com; for article titled “Funding smuggling and money laundering from BDCs,” published September 2008; in retrospect, that article contains the following observation: “We are fortunate to have ‘excess’ dollar reserves to support the dollar profligacy to BDCs for now, but what happens when the dollar income from crude oil is depleted? Presumably, in order to continue funding BDCs, we may need to borrow more from our international “friends”, who happily, not too long ago, fleeced $18b from our tattered pockets in the name of ‘debt forgiveness”!

    Instructively, Emefiele has also decried the practice, in which CBN ‘gleefully’ sustained the self-destructive unforced error of selling “$60,000 to each BDC weekly,” making an annual total of $8.6bn before the latest forex controls. This stupendous allocation of over a quarter of available total forex to the parallel market, did not include the equally suspicious, liberal facility for every Nigerian tourist to access up to $150,000 per annum at official rates, from ATMs abroad, with their Nigerian debit cards, even when such facility, predictably, became widely abused by prolific rent seekers! Pray, how many Nigerians earn $150k per annum?

    Alarmingly, however, there is nothing to suggest that manufacturers and other job creating real sector operators enjoyed the same liberal access to forex as these inexplicably pampered operators in the grey areas of the economy. Some critics may describe such unpatriotic policy directions as provocative and retrogressive and deliberately supportive of corruption and rent seeking.

    Admittedly, however, a ban on forex allocations to BDCs will instigate surging dollar demand and sooner, rather than later, the gap between officially sourced and open market dollar rates will expand and once again, make another Naira devaluation inevitable. Arguably, an official Naira exchange rate of N300, will invariably drive higher inflation rates and restrain consumer demand, while fuel prices would rise and make increasing fuel subsidy inevitable, despite the collateral complement of the oppressive economic and social consequences!

    Instructively, however, the release of CBN’s stranglehold monopoly on the forex market, will invariably strengthen the Naira by reducing the self-induced persistent challenge of excess Naira liquidity which constantly overwhelms CBN’s simultaneous regular monopolistic auctions of dollar rations. Consequently, if the Senate Committee on Finance and Public Accounts, believed Emefiele’s recent (behind closed doors) cock and bull explanation for Naira unrestrained devaluations, then our economic and social agony will continue for much longer!!

    POSTSCRIPT JULY 2019: The above article was first published on January 25, 2016. It is not generally known that the alleged over $20bn annual remittances from Nigerians is the Diaspora, may not reduce pressure on the Naira rate as often speculated; this is because dollar remittances from such outfits such as Money Gram and Western Union, regrettably make minimal impact on domestic forex supply, because, the $20bn estimated annual remittances always remain domiciled abroad and therefore make no positive impact on dollar liquidity and Naira exchange rate. Incidentally, the Naira was officially devalued in February 2016, to N305-360=$1 after this article was published!

  • The Wrong Way To Defend The Naira, By Henry Boyo

    The Wrong Way To Defend The Naira, By Henry Boyo

    By Henry Boyo

    A report on Page 33 of the Punch Newspaper edition of June 21st 2019 has indicated that “between April 2018 and March 2019, the Central Bank of Nigeria injected over $42.3bn into the foreign exchange market to ensure liquidity in that segment of the economy.”

    In the same report, Isaac Okorafor, CBN’s Director of Corporate Communications also attributed the relative stability, in the forex market, largely to CBN’s continued intervention; furthermore, according to Okorafor, private international money transfers, estimated at over $20bn annually, plus the Naira swap arrangement with the Chinese Yuan, have also contributed to exchange rate stability.

    Conversely, however, Page 35 of the same Punch Newspaper edition, also carried another story titled “DMO records 655 per cent over-subscription at Treasury bills auction;” that report confirmed that the DMO had rolled over a total of N17.61bn at its Treasury bills auction on Wednesday 19th June 2019, when CBN borrowed at rates ranging between 9.6 and 12.2 per cent, respectively, for the Treasury bills (loans) acquired by the Apex bank.

    The economic reality is that, the 655 per cent over-subscription is indicative of a Naira liquidity excess/credit pool above N111.35bn in the money market. It is inexplicable that the related Treasury bills rates were as high as between 9-12 per cent, when in fact, there is an undeniable Naira surfeit in the system; surely tomatoes do not cost more when the market has an excess supply of tomatoes!

    Instructively, nonetheless, with the subsisting 22.5 per cent Cash Reserve Requirement for banks, the N111.35bn liquidity surplus indicated above will ultimately translate to an oppressive Naira excess of over N400bn, which unfortunately will propel higher rates of inflation and increase cost of loans, which will in turn jeopardize consumer demand, economic growth and job opportunities nationwide!

    Regrettably, the Trillions of Naira CBN borrows annually, at such atrocious rates, to remove inflationary Naira surplus values from the system are deliberately simply sterilized from use to reduce liberal credit expansion from banks to customers.

    Worse still, with the suffocating perennial burden of excess Naira liquidity, the Naira’s embattled fate becomes sealed thereafter, in CBN’s bi-weekly auctions of between $200-$300m to fix the N/$ exchange rate; expectedly, the suffocating subsisting Naira liquidity surplus will always overwhelm the small dollar rations, simultaneously, auctioned by the same CBN and will therefore always threaten the Naira rate.

    Indeed, a cursory examination of CBN’s forex reserves, clearly indicates that Naira exchange rate bears minimal correlation with the size of “CBN’s External Reserves;” this relationship is indicative that rising reserves do not necessarily translate to stronger Naira rates! For example, in January 2012, Government’s Reserves, was over $34bn, while Naira exchanged for about N155/$1, but later slumped unexpectedly, to N161=$1, even when forex reserves rose well above $43bn!

    Similarly, in 2013, External Reserves fluctuated between $45bn in January to $42bn by December, yet the Naira rate remained sticky, between N153-N162/$1. Furthermore, the Naira rate actually weakened to N170-N199, in 2014, even when external reserves still trended favourably between $44bn-$45bn. Curiously, however, in 2016 when External Reserves dipped below $30bn, the Naira which, traded around N197=$1 in January, was officially devalued before December by almost 50 per cent to N305-N360=$1, while the economy was, officially also confirmed to be in recession.

    In retrospect, however, Naira rate, was as strong as N84=$1 between 1995-98, even when total reserve was a very modest $4bn! Similarly, between 1972-1984, official forex reserves was barely $390.71m but one Naira remarkably exchanged for almost $2!

    Instructively, External Reserves have climbed again above $40bn since 2017, but the Naira rate, is inexplicably stuck between N305-N360=$1 despite the ban of 41 import items from official forex sales. The salient question therefore is, if the Naira/dollar rate rose well above N300=$1, because reserves dropped below $30bn in 2015, why then, has Naira rate remained static between N305-N360, even after reserves have climbed, once again and remains stable between $40bn-$47bn, with current crude price nearer $70/barrel, and possibly providing over 20 months capacity to pay for our imports, and defend the Naira!

    It is sadly becoming obvious that CBN’s weekly strategy of bombarding the forex market with dollar reserves has, expectedly failed to stop Naira depreciation, even when dollar revenue derived from higher crude oil prices and autonomous sources significantly increased beyond, the reviewed 2018 budget benchmark of US$50.5/barrel.

    Although CBN’s Communications Director, Isaac Okorafor, suggested exchange rate stability as a priority objective, instructively however, any rapid depletion of reserves would perfunctorily precipitate market panic and induce further reserve erosion, which could, ultimately, compel another huge Naira devaluation below N500=$1. The social and economic impact of such devaluation will inevitably fast track more Nigerians into poverty, and sustain our Nation’s odious title as the reigning “World Poverty Capital!”

    It is rather macabre that, the CBN willfully depletes it stock of reserves to allegedly defend the Naira, through its regular, weekly auctions of hundreds of millions of dollars, to all and sundry including the High Street Bureau-de-Change at face value, while Government simultaneously, conversely, humbly seeks modest dollar loans and pays upto 8 per cent interest on such debts, despite CBN’s heavy cache of ‘idle’ dollars!

    Furthermore, in November 2018, the present administration inexplicably, obtained a fresh $3bn foreign loan to compound the existing $10bn that it had previously borrowed at over 7 per cent rate of interest, even though CBN carelessly broods over a rich nest of over $40bn reserves, from which, it regularly auctions dollar rations, at par value, to all and sundry, in order to, allegedly, stabilize and determine the Naira exchange rate!

    The DMO has for example, lately (June 2019) also confirmed its intention to borrow $2.7bn from foreign sources in 2019. Nigerians must question why the loan required could not be obtained directly from CBN’s caché of almost $50bn, while CBN unilaterally auctions dollar rations against the Naira and freely distributes dollars ‘sans’ interest to even Bureau-De-Change, who probably provide the major source of foreign exchange for those smuggled goods which continue to threaten Nigeria’s economy.

    The title “The Wrong Way to Defend the Naira” (see www.lesleba.com/www.betternigerianow.com) was first published in April 2011 in Vanguard Newspaper, to reflect the subsisting contradiction of increasing External reserves even when Naira exchange rate, inexplicably, conversely, remains sticky and under siege, while dollar reserves, fortuitously, also exceed budget expectations. Notably, the fears of economic contraction, increasing joblessness and deepening poverty expressed in that article have all become oppressively apparent in recent years. A brief summary of that article follows hereafter. Please read on.

    “In practice, the Naira exchange rate is actually more a function of Excess Naira liquidity, in a strictly regulated market, in which small rations of dollars are intermittently auctioned by CBN. Regrettably, such a market model will only spell disaster for growth and deepen poverty for our people.”

    “Incidentally, the CBN Governor, Lamido Sanusi, in his acceptance Speech as Silverbird’s 2010 Man of the Year, clearly referred to IMF’s recommendation for a devalued Naira as one of such ‘bad’ or anti-Nigeria recommendations. Consequently, Sanusi rightly refused to play along with IMF, as he saw no observable benefits in a weaker Naira, which would “trigger higher industrial production costs, fuel inflation, increase fuel prices and subsidies and also increase our national debt burden.”

    “Undoubtedly, Sanusi’s argument with regard to the critical need for a stable Naira value is certainly very plausible; but the real question is, can the CBN Governor keep Naira below N155/$1 within the context of the present framework that explodes Naira supply whenever distributable dollar revenue, in monthly allocations to Government is substituted with Naira? This column has consistently maintained that Naira substitution for dollar revenue is the poison in our economy, as it engenders a system that cripples our economy and oppresses our people whenever we earn increasing dollar revenue; a veritable paradox if there ever was one!”

    POSTSCRIPT 2019: The adoption of dollar certificates for allocation of dollar revenue, clearly still remains the most practical solution to the Naira’s perennially embattled state!

  • “Free-floating the Naira is disobeying the Law” – CBN, By Henry Boyo

    “Free-floating the Naira is disobeying the Law” – CBN, By Henry Boyo

    The title above is from Tuesday, June 11th edition of the Daily Independent Newspaper. In the related report, CBN Governor, Godwin Emefiele, engaged stakeholders, at an interactive session in Lagos, on why he has rebuffed the incessant calls by some ‘experts’ to deregulate and float the Naira exchange rate, as a product of the actual market dynamics of demand and supply.

    Notably, the proponents of deregulation argue that price controls create serious distortions in the supply chain and also claim that rather than the poor, oligarchs and shylock middlemen, are the usual beneficiaries of the huge subsidies that evolve from businesses, where Government sales price regulates.

    The above contrasting positions notwithstanding, hereafter, excerpts of the CBN Governor’s observations on why he will not float the Naira rate will be more closely examined. To this end, Emefiele’s comments will be followed by this writer’s rejoinders. Please read on.

    Emefiele: “A flexible exchange rate would not favour the poor. I am committed to protecting the Naira. We cannot allow the Naira to float freely.”

    Comment: Notably, all successful first world economies, curiously, maintain floating exchange rates! Conversely, those countries with regulated exchange rates, usually become poor, dysfunctional economies, often with multiple discretionary exchange rates; for example, Nigeria with a regulated exchange rate tradition is now the World’s Poverty Capital. Instructively, however, the free-floating US dollar rate has remained fairly stable against other major currencies, while the Naira rate has conversely crashed from N0.5=$1 to the present N305-360=$1. Undeniably, therefore, CBN’s rate strategy has inexplicably, failed woefully, overtime, to protect the Naira, even when higher crude prices and best ever foreign reserves significantly improves Nigeria’s imports cover.

    Emefiele: “It would be difficult to achieve a low interest rate regime, a stable exchange rate regime, robust reserve position, a low inflationary environment, and an environment of full employment simultaneously. But the question we should ask ourselves is, in today’s Nigeria is, are these all possible at the same time?”

    Comment: Instructively, the concurrent abiding monetary features in more successful economies with stable exchange rates, are “low interest rate regimes, with below 3 per cent Monetary Policy Rates, and inflation rates, usually, also below 5 per cent, plus a well remunerated and trained Labour force. Consequently, it is not true, as Emefiele claims that benign monetary indices, robust reserves and increasing employment cannot exist simultaneously! Notably, however, despite its regulated rate, the Naira is presently nearer 1000th of its value against its dollar value over 40 years ago, when 50Kobo exchanged for just $1.

    Emefiele: “Put succinctly, we have watched some so-called economic and financial analysts through televisions, and others through the newspapers say that “to grow the economy and create jobs, the CBN must allow exchange rate to free float, and also allow inflation to rise; while at the same time allowing interest rates to come down. Again, I am not surprised at these views because most have done so with shockingly limited or outright incorrect information.”

    Comment: Instructively, spiraling inflation instigates higher cost of borrowing, as it is irrational for anyone, including banks, to lend money, below inflation rate. Furthermore, higher interest rates, will in turn drive industrial contraction and rising unemployment; consequently, this writer agrees with the CBN Governor that any “so-called economic and financial analyst” who advises that inflation should be allowed to rise significantly beyond best practice rates below 4 per cent, must certainly be poorly informed and grossly misguided!

    However, as earlier observed, all eminently successful economies worldwide presently ‘free-float’ their currency rates. So the Naira rate mechanism is actually on the wrong side of the fence, and it is predictable therefore, that its rigidity to real market dynamics, i.e. price regulation, would create serious economic distortions which will constrain growth and pauperise our people. The discretionary, fixed multiple Naira exchange rate mechanism has not stimulated the same bountiful economic matrix enjoyed by countries which free-float their currencies. We should be concerned, despite Nigeria’s humongous annual dollar income.

    Consequently, Emefiele is deeply enmeshed in mischief when he suggests that he is dutifully defending the Naira, despite calls from ‘Experts’ for a free-float. In practice, CBN is probably, more correctly, a greater defender of the dollar than Naira, as the subsisting rate mechanism involves the weekly/bi-weekly auctions of small dollar rations, usually between $200-$300million, in a market that the same CBN had earlier, undeniably, consciously, flushed with surplus Naira liquidity! Predictably, therefore, Naira’s free-fall is guaranteed in such lopsided auctions. Instructively, not even increasing dollar earnings, as witnessed since 1999, could rescue the Naira rate from systemic depreciation! Some critics will probably describe the CBN’s role in these dollar auctions as Treason!

    Emefiele: “For example, we have watched some armchair analysts demand that the CBN stop ‘defending’ the Naira and simply allow market forces to determine the exchange rate. These analysts simply call for the Naira to be floated. To these analysts, let me remind them that the CBN Act demands that we ‘defend’ the Naira using the foreign exchange rate reserves. In setting out the five principle mandates of the CBN, Section 2, Subsection C of the CBN Act 2007 reads and I quote “… maintain external reserves to safeguard the international value of the legal tender currency.”

    Comment: Admittedly, Section 2, Subsection (c) of the 2007 CBN Act actually stipulates Emefiele’s above quote. However, the same Section 2, Subsection (a) of the same Act, unequivocally mandates CBN to ensure monetary and price stability as the prime and foremost principle.

    Regrettably, CBN has, notably, failed to achieve its prime mandate of price stability, as inflation has remained beyond 10 per cent, in place of best practice 1-3 per cent rates for the better part of 10 years! Instructively, with this abiding inflation rate, the sum of N1000 with an initial purchasing power of over $8 in 2005, now has below $3 purchasing power! Predictably, therefore, despite the Governor’s apparent celebration of the fixed Naira rate, inevitably, however, the subsisting incurable double-digit inflation rates will still precipitate depreciation and ultimately drive further Naira devaluation and deepen poverty!

    Emefiele: “In effect, the CBN would be disobeying the law establishing it, if it sits idly by and allow the Naira to be determined wholly by those so-called market forces.”

    Comment: The prime responsibility of CBN according to the 2007 Act is price stability, i.e. stable prices of goods and services overtime. Incidentally, official statistics indicate that the general price level continues to rise by over 10 per cent annually!! Notably therefore, the CBN is knowingly “disobeying” its prime and foremost responsibility for price stability as espoused in Section 2, Subsection (a) of CBN 2007 Act. Invariably, unbridled inflationary spiral, will ultimately also trigger higher cost of borrowing and further Naira devaluation.

    Emefiele: “Those calling for floating of the currency betray their ignorance of the effects of significant depreciation, however short-lived, on inflation.”

    Comment: The CBN’s refusal to adopt free-floating Naira rate only betrays the CBN’s inability to significantly reduce the perennial scourge of surplus Naira which drives higher inflation rates and higher cost of borrowing, which ultimately constricts consumer demand and hamstrings industrial expansion and job opportunities. Furthermore, it is apparent mischief for CBN to finger the transparent mechanism of free-floating rates as a villain. Undeniably, the Naira poor exchange rate is fundamentally attributable to the inflationary spiral fueled by the Naira liquidity surplus that is unleashed, whenever CBN substitutes Naira allocations for monthly distributable dollar denominated revenue!

    Worse still, the practice of auctioning dollar rations in a market, that is already consciously flooded with Naira by CBN, is a deliberate mechanism to continuously weaken the Nigerian currency! History clearly validates this observation as Nigerians have become poorer, despite increasing dollar reserves in CBN’s custody!

    This writer would also recommend that the CBN Governor’s tenure be circumscribed by the capacity to keep inflation below 3 per cent best practice rates, so that spurious excuses are not made for self-inflicted economic failure!

  • Why we can’t allow Naira float freely against other currencies – Emefiele

    The Central Bank of Nigeria (CBN) vowed on Saturday to sustain its policy of defending the naira against world currencies for the next five years.

    It said the policy is backed by the CBN Act.

    Speaking at a Consultative Roundtable with the CBN Governor tagged: ‘Going for Growth’ held in Lagos, Governor of the apex bank, Mr. Godwin Emefiele, said the CBN would be disobeying the law by allowing the naira to float freely.

    A flexible exchange rate, according to him, would not favour the poor.

    “I am committed to protecting the naira. We cannot allow the naira to float freely,” he said.

    Emefiele told his audience which included Governor Babajide Sanwo-Olu of Lagos State, Chairman Dangote Group, Alhaji Aliko Dangote, Zenith Bank Chairman, Jim Ovia, founder and Chairman of Honeywell Group, Oba Otudeko, one time Lagos State Commissioner of Finance, Wale Edun, Board Member, Standard Bank Group, Ateto Peterside, among others that the apex bank’s goal in participating in the roundtable session was to generate valuable insights from key stakeholders on the role Monetary Policy authorities could play in formulating and implementing policy measures that will support improved economic growth, as well as the creation of jobs in Nigeria both in the near and long run.

    He said it would be difficult to achieve a low interest rate regime, a stable exchange rate regime and robust reserve position , a low inflationary environment, and an environment of full employment at the same time.

    He said:”In fact, I love these and would have less stress in monetary policy if all these are possible. But the question we should ask ourselves at this session is, in the Nigeria of today, are these all possible at the same time?

    “Put succinctly, we have watched some so-called economic and financial analysts through televisions and others through the newspapers say that ‘to grow the economy and create jobs, the CBN must allow exchange rate to free float, and also allow inflation to rise; while at the same time allowing interest rates to come down.’

    “We have also curiously observed that these analysts have often reached different conclusions from those of the CBN. Again, I am not surprised at these views because most have done so with shockingly limited or outright incorrect information.

    “For example, we have watched some armchair analysts demand that the CBN stop ‘defending’ the Naira and simply allow market forces to determine the exchange rate. These analysts simply call for the Naira to be floated. To these analysts, let me remind them that the CBN Act demands that we ‘defend’ the Naira using the foreign exchange reserves. In setting out the five principal mandates of the CBN, Section 2, Subsection C of the CBN Act 2007 reads and I quote “…maintain external reserves to safeguard the international value of the legal tender currency”.

    “In effect, the CBN would be disobeying the law establishing it, if it sits idly by and allow the Naira to be determined wholly by the so-called market forces.”

    Continuing, Emefiele said those calling for floating of the currency betray their ignorance of the effects of significant depreciation, however short-lived, on inflation.

    He said several empirical analyses have shown that the pass-through of changes in the exchange rate on consumer prices is almost one-to-one. This implies that for every percentage point depreciation in the Naira, there is almost the same rise in inflation.

    Emefiele said productivity growth in these sectors are badly needed to insulate the economy from volatilities in the crude oil market and help in creating jobs on a mass scale, given Nigeria’s large and growing population.

    He said the CBN had, in the last five years, taken a number of measures to support the growth of the economy and these have helped in achieving the Macroeconomic stability seen today with inflation trending down to 11.37 per cent from 18.72 in January 2017 as well as exchange rate stability at current levels with considerable convergence and reserves build up to current level of over $45 billion compared to $23 billion in October 2016.

    “Although we had hoped to achieve a lower level of interest rate, this became impossible given the normalization of Monetary Policy in the United States and the over 60 per cent drop in crude oil prices between 2014 and 2016. You will agree with me that the consequences of these unfortunate occurrences was a heightened inflationary pressure on the economy and Monetary policy had no option but to embark on a regime of tightening so as to rein inflation,” Emefiele said.

    He also said that the CBN people suggest that all they want is for the CBN to reduce interest rates.

    Also speaking, Gov Sanwo-Olu said that Lagos State contributes 30 per cent to Nigeria’s Gross Domestic Product (GDP) adding that the state will need to invest more in priority areas such as health, education, affordable housing and also make the local economy to be competitive.

    He advised the CBN to support export growth to make Naira competitive and stable. He urged the CBN to play its part in supporting the economy.

    Dangote said that policy implementation is key in achieving economic growth. He said that without power, it will be difficult to achieve desired growth in the economy. He said that the country has been struggling for the past 18 years without solving the power challenge, which has remained a major challenge facing the private sector.

    He said that the Dangote Refinery is expected to generate N9trillion in revenue when it begins operation. He also spoke against smuggling, adding that Benin Republic is making it difficult for Nigeria to tackle the activities of smugglers. According to him: “There is no country that will survive with a neighbour like Benin Republic.”

    Also speaking on the activities of smugglers, Emefiele said the CBN has already identified business owners that are involved in smuggling and will blacklist and stop them from operating bank accounts in Nigeria.

  • Police arrest corps member for having old naira notes

    Policemen in the Federal Capital Territory (FCT), Abuja, have been accused of arresting a 21-year-old National Youth Service Corps member (NYSC), Temisan, for allegedly being in possession of old Nigerian currencies N20 and N50.

    The corps member’s mother, Bunmi Dipo-Salami, took to her Facebook wall to condemn the action of the policemen, perceiving it as a war against women.

    According to Bunmi, Temisan was arrested at a check-point by the City Capital Hotel, in Abuja at about 11pm for being in possession of old Nigerian currencies – N20 and N50. The call came less than three minutes after Temisan called her mom that she was on her home.

    Bunmi explained that Temisan had gone for dinner with her friends at the Ivory Place in Wuse 2 and was on her way back home when the Police team of four, stopped the car she was riding in, asked her to come down and started searching her handbag.

    When they allegedly couldn’t find any contraband in her bag, they pulled her wallet apart and found the old bills.

    When the policemen told Temisan, that she was under arrest, she quickly called her mom.

    Bunmi said: “They asked her to stand by the roadside and dismissed her Taxify. The policemen said that they were taking her somewhere and that she would know her offence. So she started shouting that her mum wanted to speak with them. I heard the policeman say ‘stupid girl, who is taking your phone? So reluctantly he took the phone and I introduced myself as her mum and requested to know what they were charging her for.

    “That was when Officer Nnaman told me, ‘we found old currency in her bag so we are taking her to the station’. When I asked where, he couldn’t tell me any particular location. All he said was ‘well, we are still at City Capitol hotel for now, but we will soon go’.

    “When he said that, I saw flashes of the manifestations of the war on Nigerian women; women arrested on trumped up charges and raped in custody, commercial sex workers arrested for the sexual pleasure of the police and detained for days. I saw women, who were killed for trying to resist their Police abductors and labelled armed robbers or girlfriends of criminals, accused of illegal possession of hard drugs and so on and so forth. I told God that Temisan will not be added to the statistics.”

    Bunmi dashed out of her house, heading to meet her daughter. While in her, she quickly put a call across to a friend, who is a Deputy Commissioner of Police (DCP). The DCP confirmed that it wasn’t a criminal offence to be in possession of old naira bills.

    Bunmi narrated: “When I saw my daughter, my heart sank. Whoever saw her where she stood by the hotel would have said she was soliciting. Nobody would have imagined that her journey did not originate from that location or that her Taxify driver was dismissed by the Nigerian Police Officers on duty! She was visibly shaken and traumatised, but she was composed. I held her tight and asked for the Officer in Charge.

    “He repeated her offence and showed me the two bills in the photo as evidence. I requested to know if that was an offence and he answered in the affirmative. I called the DCP and handed the phone to officer Nnama. They spoke and all I could hear was ‘yes sir, yes sir, yes sir’. When he handed the phone back to me, he was looking like a deflated balloon. The DCP apologised profusely on behalf of the Force. Then we were free to go home.”

    Bunmi said that she didn’t know how the night would have turned out, if she didn’t know a DCP.

    She further said: “It did not matter that she carried her NYSC ID card or her valid Driver’s license or her Voter’s Card in her wallet – documents, that would have shown that she is a responsible, law abiding citizen. I wondered what could have happened to her if I had been out of town or if I did not live here in Abuja with her. I am also angry that we have a President that allows the war on Nigerian women to go on and refuses to say a word. I am angry at the innocent women whose lives have been taken or ruined due to poor leadership and virtuous followership.”

  • Naira withstands pressure, appreciates against dollar at most market segments

    Naira withstands pressure, appreciates against dollar at most market segments

    It was a sterling performance for the Naira against the United States Dollar at the foreign exchange (forex) market last week.

    This was despite huge pressure the local currency came under in the build up to the rescheduled presidential and parliamentary elections, which took place on Saturday, February 23, 2019.

    Recall that a recent glitch at popular search engine, Google on Friday evening exchanged the dollar for N184, N54 and N28.

    However, at the Investors & Exporters (I&E) forex window, the local currency appreciated by 0.04 percent to close at N361.49 to a Dollar.

    Also, the Naira Dollar exchange rate at improved by 0.04 percent to close at N356.97/$ amid weekly injections of $210 million by Central Bank of Nigeria (CBN) into the foreign exchange market via the Secondary Market Intervention Sales (SMIS).

    A breakdown of this intervention showed that $100 million was allocated to Wholesale SMIS, $55 million was allocated to Small and Medium Scale Enterprises and another $55 million was sold for invisibles.

    According to Cowry Asset, at the parallel market and Bureau De Change (BDC) market segments last week, Naira appreciated by 0.55 percent and 0.56 percent to close at N360/$ and N357/$ respectively.

    Meanwhile, the Naira/Dollar exchange rate sustained gains for most of the foreign exchange forward contracts – 1 month, 2 months and 3 months rates moderated by 0.16 percent, 0.16 percent and 0.06 percent respectively to close at N364.07/$, N367.06/$ and N370.47/$ respectively.

    However, the Naira/Dollar exchange rate performance badly for spot rate and 12 months forward contracts, declining by 0.02 percent and 0.03 percent to close at N306.80/$ and N412.66/$ respectively.

     

  • CBN clears air on controversial dollar crash on Google, affirms stability of naira

    The Central Bank of Nigeria (CBN) on Friday evening cleared the air on the magical fall of the United States Dollars against Nigeria’s naira.

    Checks by TNG on google on Friday night, showed the naira gaining grounds from N362 to a dollar to N184 to a dollar.

    Further checks by TNG an hour later on the popular search engine placed the naira at N54 to a dollar.

    Speaking in an exclusive interview with TNG on Friday night, the acting Director, Corporate Communications of the apex bank, Isaac Okoroafor said the mix up was from Google and expressed hope that the tech giant would fix it soon.

    Okoroafor noted that the official exchange rate of the naira to the dollar stands at N306.8 as at Friday evening.

    “I’ve received countless number of calls on this same issue. Its obviously a technical itch on the part of Google and I’m sure they will rectify it soonest. The rates have not changed. Please tell Nigerians to dispel the confusion. We sort it soon,’ the CBN spokesman told TNG on Friday night.

    The Nigerian currency on Friday gained N1 to close at N358 to the dollar at the parallel market in Lagos.

    TNG reports that the naira traded stronger on the eve of elections than Thursday when it closed at N359 to a dollar.

    The Pound Sterling was sold at N470 and the Euro at N408.

    At the Bureau De Change (BDC) segment, the naira traded at N360 to the dollar, while the Pound Sterling and the Euro closed at N470 and N408.

    Trading at the investors window saw the naira closing at N361.49 to the dollar as market turnover stood at 292.34 million dollars.