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Tag: Naira

  • Naira remains stable against dollar, euro

    Naira remains stable against dollar, euro

    …exchanges for N362, N481

    The Naira on Monday remained stable as it traded at N362 to the dollar at the parallel market, same amount it was sold last Friday.

    The Naira also closed against the euro at N481 at same market in Lagos.

    At the Bureau De Change (BDCs) window, the Naira also recorded same stability.

    It traded at N362 to the dollar, while the euro was sold at N482 since last week.

    Data from the Financial Market Dealers Quote (FMDQ) showed that the indicative exchange rate for the I&E was at N360.15 per dollar.

    The exchange was an appreciation of 0.01 percent from N360.19 per dollar recorded last Friday.

    The Central Bank Of Nigeria (CBN) rate closed at N305.95 to the dollar.

    Some of black market operators and BDCs said that there was no figure for pounds.

    They were skeptical about trading naira for the currency because of the banknote changes by Bank of England.

    The old £10 note is set to go out of circulation on March 1, 2018.

    However, old notes can still be spent ahead of the cut-off date or exchanged at the bank once the point has passed.

    The old paper fivers went out of circulation on May 5, 2017.

  • Advantages of a Stronger Naira By Henry Boyo

    Advantages of a Stronger Naira By Henry Boyo

    By Henry Boyo

    “In an earlier article published, this month (May 2014), this writer explained why further naira devaluation would restrain demand and economic growth, and also deepen the depth of poverty in a population that is heavily riddled with heavy unemployment, in which more Nigerians, now live on less than $2 per day. Furthermore, an unyielding, suffocating, self-inflicted, and unusual burden of surplus Naira was also identified as the primary cause of weaker Naira exchange rates, even when we earned relatively, bountiful dollar reserves, since the return to civil rule in 1999.”

    The narrative, this week, will answer questions on the impact of a stronger naira exchange rate, such as N80:$1, on critical economic indices like inflation, interest rate, fuel subsidy, national debt and job creation.” The above title “Advantages of a Stronger Naira” was first published on May 26 2014, in at least 3 popular Nigerian Newspapers including this one. The discussion is as follows:

    “Why do you believe that a stronger naira is better for the economy?

    Historical evidence clearly confirms that the trajectory of deepening poverty in Nigeria, correlates loyally with the curve of Naira depreciation from stronger than N1=$1 in the 70s and early 80s to the current market rate of about N160:$1. In practice, a much stronger naira should realistically, yield more benefits to Nigeria’s economy, and halt deepening poverty; conversely, any naira depreciation will further fuel inflation, deepen poverty, and widen the already huge gap between the rich few and the poor masses.

     

    So, how does naira exchange rate affect inflation?

    Inflation is generally defined as excess money chasing too few goods; consequently, inflation will be restrained, when optimal naira values exist in the system. For example, the substitution of naira allocation for say, $1bn distributable revenue at a rate of N160:$1, will immediately increase the total stock of naira by N160bn; furthermore, if CBN’s subsisting mandatory Cash Reserve Ratio is also, for example, 10 percent, commercial banks’ could further leverage ten-fold on this fresh addition of N160bn to seriously compound the burden of surplus naira and spiralling inflation in the economy.

    Conversely, if the same $1bn allocation was exchanged by CBN at a stronger rate of say, N80:$1, the addition to money supply, from such substituted naira allocation would obviously reduce nominally, by at least 50 percent to just N80bn.

    Invariably, inflation will fall when there is less Naira liquidity and a stronger naira rate, as there would be less additional surplus cash created from Naira substitution to expand demand and buy up more goods and services; Furthermore, lower inflation rates will, also, increase the purchasing power of all income earners, and reduce cost of production. Indeed, economic best practice inflation rate is often less than 2 percent in successful economies everywhere; thus, our current inflation rate of 8 percent (2014) means that static income earners (e.g. pensioners) will lose 40 percent purchasing power of their incomes every five years!

     

    Does a stronger naira positively affect interest rate?

    In another article titled “Should the Naira be Devalued” (May 12th 2014, www.lesleba.com), this writer explained that the existing high interest rates are caused by CBN’s self-infliction of surplus naira on the economy, particularly, whenever it independently substitutes Naira allocations for dollar denominated revenue. Furthermore, lower naira exchange rates will also evolve, whenever this ‘poison’ of Systemic Naira surplus increases; conversely, a stronger exchange rate of, say, N80:$1 will invariably reduce the challenge of disenabling excess naira by at least 50 percent, and therefore, also restrain inflation.

    Consequently, with a stronger Naira, CBN will never be compelled, by the fear of inflation, which is fueled by subsisting surplus naira, to knowingly sustain disruptively high Monetary Policy Rates (MPR) that will in turn, trigger over 20 percent cost of borrowing to real sector investors. Thus, when there is much reduced or near optimal money supply, the apex bank will invariably lower its MPR (i.e. rate at which it lends to commercial banks), from the current, disturbingly high level of 12 percent, to more benign levels, below 5 percent, so that banks can, in turn, lend to investors at rates that facilitate increasing productivity and more job opportunities. Notably, cost of funds to the real sector never exceeds single digit in prosperous economies.

    Evidently, if cost of borrowing is cheaper, Made-in-Nigeria goods will also become more competitive against those imports, which are also supported with cheap concessionary funds by home governments. Ultimately, a stronger naira will stimulate productivity, with cheaper Made-in-Nigeria goods, and also provide increasing jobs opportunities.

    Nonetheless, we must recognise that no country can successfully grow its economy, if governments’ deposits in banks, earn zero interest, while the same government is simultaneously, paying double-digit interest rates, to the same banks, in order to remove perceived surplus naira values from the system, and restrain inflation. The irony is that the CBN is actually the direct cause of the eternally surplus Naira.

     

    Will a naira exchange rate of N80:$1 have any other positive economic impact?

    An exchange rate of N80:$1 will obviously enhance the naira’s purchasing power. Thus, the N18,000 minimum wage, for example, which is currently equal to about $110, would now be worth $220 per month. Furthermore, the additional consumer demand created by the 100 percent higher purchasing power of Naira incomes would also encourage local entrepreneurs to produce, particularly if cost of borrowing also falls below 10 percent.

    What impact would such entrepreneurial impetus have on our economy?

    Well, the renewed spirit of enterprise would ultimately lead to the creation of more job opportunities, as new investors enter the market, while established industrialists would expand their capacity utilization, or retool their plants to expand production. Ultimately, the wages earned by the increasing army of freshly employed workers, will also create additional consumer demand, which will further invigorate the industrial climate, to instigate rapid industrial expansion, with even more job opportunities and government tax revenue in tow.

    Will a stronger naira eliminate fuel subsidy?

    Yes, it would; for example, if petrol, as a commodity, sells for $1/litre ex refinery worldwide, this would be equivalent to N160/litre in Nigeria, without shipping and other extraneous local charges and taxes. If however, the naira rate falls from N160:$1 to, say, N200:$1, the same petrol would now also sell for N200/litre ex-refinery. Notably, however, if petrol, continues to sell for N97/litre instead of the actual market price of about N200/litre, the attendant subsidy value would increase to N103/litre, instead of the current N53/litre when Naira exchanges for N160:$1.

    Nonetheless, a stronger rate of N80:$1 will invariably reduce petrol price, even without subsidy, to N80/litre; thus, billions of dollars will be saved annually, if there is total elimination of fuel subsidy. Indeed, a petrol tax of N17/litre or more can be levied by government. Thus, the sum of over $12bn (N2tn), presently, allegedly frittered away annually, as fuel subsidy, will then become available for rapid infrastructural enhancement in the critical areas of education, health, transportation, etc.

    Will a stronger naira reduce our national debt burden?

    A stronger naira will reduce the cost and size of government debt, as cost of funds will fall for both private and public sector borrowings. Additionally, government will not need to, increase its debt burden unnecessarily, by recklessly funding (or subsidizing) banks at zero percent, while irrationally and recklessly turning round to borrow back the same funds from the same banks, at double-digit interest rates, just to manage perceived surplus naira and contain inflation.

    In conclusion, therefore, the distortions associated with persistent excess naira liquidity will be harmoniously resolved if dollar certificates are adopted for the allocation of dollar-denominated revenue.”

    Post-script 2018: Exchange rate N300-360 per dollar, inflation nearer 15 percent from 8 percent, youth unemployment well over 20 percent while over 40 percent revenue is used for debt servicing. Hope for the future is very big!

     

    SAVE THE NAIRA, SAVE NIGERIANS!

     

     

  • Naira: Redesign, Redenomination or Revaluation? By Henry Boyo

    Naira: Redesign, Redenomination or Revaluation? By Henry Boyo

    The evident danger to public health from handling dirty, grimy and bacteria laden Naira notes in millions of transactions every day, should spur government to reconsider revamping the present repulsive profile of the Naira. The above title, which was first published in August 2013 in the Punch and Vanguard Newspapers, examines the need for a stable, sustainable, and cleaner Naira profile. Please read on:

     

    “In a recent interactive session with the House of Representatives Committee on Banking and Currency, the Governor of Central Bank, Lamido Sanusi, noted that if the plan to redesign naira notes last year was executed, “it would have made it impossible for counterfeiters to cook”. He further noted that best practice currency management is that “Within a period of 5–8 years, you redesign the currency, after which counterfeiters tend to catch up with you”.

     

    The question, which we may need to ask, however, is whether counterfeiting or redesign is the most serious problem with our currency, particularly when Sanusi, himself, admits that “In terms of what we see as counterfeit in the processing of naira notes, the percentage, is very low”! Indeed, the claim that it is also best practice to redesign currency every 5-7 years may not be supported by the relative longevity of currencies such as the pound sterling and US dollar!

     

    In practice, the more significant challenges to the current naira profile relate to the issues of unwieldy portability, the acrimony associated with shortage of change for small transactions, the inflationary push associated with product pricing, the rapid deterioration of both paper and polymer notes because of their high turnover rate and ultimately the reduction in naira’s purchasing power because of double-digit annual inflation rates and Naira devaluation.

     

    Indeed, it will be self-delusion to think that a mere redesign of the naira would counter or remediate these weaknesses!

     

    Consequently, some analysts have suggested that redenomination/decimalization would make the naira more portable, to also accommodate primary kobo coins, which would fill the huge gap for change in small transactions, and make very competitive pricing of consumer products more practical, to possibly, also restrain inflation!

     

    Instructively, redenomination is the simple process of changing the nominal value of a currency by moving the decimal point; for example, if the naira is restructured by two decimal points, then, N1000, which is presently the highest in our currency profile, will be replaced by a N10 denomination. Similarly, existing N100 note will become N1; consequently, the new N1 denomination can then be fabricated as a coin, and still have the same purchasing value as the old N100 note. Similarly, the present N50 would become a 50Kobo coin, while the current N10 will become 10Kobo coin, so that the old N1 will become 1Kobo. Incidentally, with such redenomination, the N5000 note proposed by, Lamido Sanusi, would become just N50.

     

    In this manner, a redenominated currency profile, would increase the purchasing power of coin denominations and still make them portable and attractive for settling transactions and for the ready provision of change.

     

    Furthermore, consumer products can also become more competitively priced in steps as low as plus or minus 1Kobo, rather than the for example unusually wide leap of N5 or more, as with pure water sachets, because of inconvenient portability and the public’s rejection of primary coins.

     

    Instructively, nonetheless, the advantages of redenomination may however, be short-lived, if the abiding economic instigators of inflation are not adequately tackled. For example, the Ghanaian currency, the Cedi, was redenominated by four decimal points, just over five years ago (2007), such that the old ¢10,000, became just one new Ghana cedi and exchanged for almost US$1.2; however, since the root causes of Ghana’s average annual inflation rate of about 15 percent remained unresolved, the cedi inevitably depreciated, sadly, by over 50 percent to Gh¢1.8=US$1. Post script(2018-GH4.4=US$1).

     

    From the above discussion, it will be clear that neither redesigning nor redenomination of a currency completely satisfies the critical composite qualities of portability, safe store of value and general acceptability as a medium of exchange.

     

    Consequently, this writer has consistently advised, for well over a decade, that the issue of value is the major problem with naira profile; for example, a much stronger naira value, just like redenomination, would make primary kobo coins more valuable. However, if the root causes of our economy’s incurable double-digit annual inflation rates remain unresolved, the purchasing power of the redenominated naira would also become rapidly eroded, to make the naira a poor store of value, as is sadly presently, the case with the Ghana cedi!

     

    Some analysts have, however, argued that the naira value cannot be enhanced or improved until we have diversified our economy and produced more, to earn additional export revenue; instructively, however, a diversified economy can never evolve without liberal access to cheap funds, at rates which do not exceed 5-6 percent for productive investments, while the naira exchange rate must also become much stronger, so that the cost of importing critical raw materials required to sustain industrial expansion will inversely become cheaper.

     

    Regrettably, such benign enabling climate will never be possible, and our processed products will hardly be competitive against imports, so long as Nigeria’s economy remains besieged by the unyielding threat of surplus cash, which according to the CBN Governor, in a recent statement, ultimately predicates the crazy reality of government borrowing back its own funds at 13–14 percent, while cost of funds for job creating productive investments, remains disenabling at over 20 percent, with inflation, still largely, untamed at well over 10 percent.

     

    Instructively, the creation or substitution of humongous naira sums as replacement for the monthly allocations of dollar-derived revenue, undoubtedly creates the unyielding burden of surplus Naira liquidity, (which must be sterilized from use to restrain inflation), the perceived Naira Sutplus also compel the conscious manipulation of the balance of demand and supply of the naira in favour of the dollar, in the forex market. Thus, this systemic paradox of a weakening naira even when reserves are relatively bountiful, would ultimately make our currency less desirable to hold as a safe store of value.

     

    For these reasons, the naira has unexpectedly depreciated, as our dollar reserves climbed from less than $4bn in 1996 to well over $50bn in recent years. Consequently, in order to appropriately realign the naira/dollar exchange rate with market demand and supply, dollar certificates should be adopted for allocations of dollar-denominated revenue, rather than recklessly, consciously creating naira replacements, which fuel the systemic ‘sickness’ of surplus/excess naira supply. The evolving market redress of more dollars chasing naira, with such a payment reform, will provide a platform for a stronger naira/dollar exchange rate, and also make the naira a currency of choice.

     

    A much stronger naira will ultimately also make primary Kobo coins more valuable and portable for transactions. In retrospect, there is no sensible explanation why naira should exchange for N80=$1 between 1996 and 1998 with barely reserves to pay for 4 months imports, while the naira currently exchanges for N160=$1 (2013) despite, the reported over 12 months imports demand cover!

     

    Furthermore, the adoption of dollar certificates will also better manage the existing systemic Naira liquidity that, invariably, continuously fuels inflation to compel the folly of CBN borrowing trillions of Naira that it does not need, at recklessly high and crazy interest rates, when those investment which who will create more jobs are denied access to fund with single-digit interest rates.”

     

    February 2018 Postscript: In deference to government’s failure to successfully tackle the root causes of inflation, the Ghana Cedi has since collapsed from ¢1=$1.1 in 2007 to ¢4.4=$1 i.e. 44000 old Cedis in February 2018.’

     

    In conclusion, neither currency redesign nor redenomination can sustainably accommodate the precious values of acceptability, portability and safe store of value, especially when the threat of double-digit inflation rates still subsists.

    Attachments area
  • Naira may fall to N386/$1 by mid year —PwC

    Naira may fall to N386/$1 by mid year —PwC

    Multinational professional services firm, PricewaterhouseCoopers has predicted that the Nigerian currency may depreciate against the United States dollar at the Investors and Exporters Window to 386 from the current average of 360 by mid year.

    In its economic outlook for 2018, which was released on Tuesday, PwC said increased foreign exchange demand ahead of the 2019 general election might make the local unit to weaken.

    The report read in part, “With the outlook on the oil price and level of reserves accretion ($40.6bn), we expect that the CBN would maintain the exchange rate peg of 305/dollar at the CBN window.

    “In H2’18, we estimate a seven per cent exchange rate depreciation in the I&E window to 386/dollar, as FX demand increases and foreign investments slow ahead of the 2019 elections.

    “Overall, the CBN maintains its multiple exchange rate regime, sustaining its intervention in the various FX markets.”

    According to analysts at PwC, exports are likely to outpace imports on strong oil export revenues and shrinking import demand this year

    The real Gross Domestic Product growth is expected to reach two per cent year-on-year on improvements in net exports and domestic demand

    The professional services firm said investments would benefit from an improving investment climate.

    It, however, said that some of this growth would be offset by uncertainty usually associated with election cycles in Nigeria

    On monetary policy projection, it said, “Moderating inflation, exchange rate stability and a fragile economic recovery provide room for a rate cut. We expect only one rate cut in 2018 which would likely be capped at 200bps. The need to keep rate differentials attractive means Open Market Operations issuances would become more aggressive

    “To offset the impact of pre-election spending and currency volatility, we expect a 200bps increase in the MPR to 14 per cent at the September meeting.”

     

  • Sensible path to a stronger Naira and economic prosperity, By Henry Boyo

    Sensible path to a stronger Naira and economic prosperity, By Henry Boyo

    By Henry Boyo

    This column has consistently maintained that the root cause of our economic paradox of increasing income, with unbridled unemployment rate, and deepening poverty will be found in the conscious but incorrect adoption of a faulty and distortional process for the infusion of our crude export dollar revenue.

    Hereafter, we shall discuss the related ADVERSE consequences of the Current Payments Model (CPM) against the POSITIVE attributes of an Advocated Payments Model (APM) of adopting dollar certificates for the allocation, for example, of $1bn export revenue to the three tiers of government in eight sequential scenes, in the following explanatory steps.

    Thus, in CPM:-1 The CBN unilaterally determines the naira exchange rate and thereafter unconstitutionally captures the distributable $1bn revenue and prints/creates in replacement (read as monetizes) N305bn as statutory allocations, which are then domiciled in the bank accounts of beneficiaries.

    APM:-1 The same $1bn distributable revenue is not immediately substituted with N305bn allocation; instead, constitutional beneficiaries receive dollar certificates equal to their respective allocations, while the actual $1bn remains domiciled in CBN, so that the naira exchange rate is conversely determined by, competitive market forces of demand and supply.

    CPM:-2 If, however, CBN’s mandatory cash reserve ratio for banks is, for example 10 percent, the N200bn inflow can be leveraged ten-fold, to N2,000bn to facilitate additional credit and expand consumer spending power which will invariably irrepressibly fuel inflation. The recent establishment of the Treasury Single Account will, regrettably, only temporarily absorbs such cash injections, as the N200bn allocation, for example, will ultimately migrate, when spent, into private sector bank accounts and compulsively expand Naira liquidity and, banks’ credit capacity and consumer demand to further inflation.

    APM:- 2 With strictly dollar allocations, no fresh Naira is created; thus, the naira supply in the system remains unchanged, and cannot therefore instigate the usual disenabling systemic spectre of surplus naira that fuel inflation.

    CPM:-3 In response to evolving inflationary threats, the same CBN, ironically, ‘altruistically’ sells treasury bills to borrow money it does not need, often, with 10 percent rates, just to combat the challenges of systemic excess Naira and excessive consumer demand! Inexplicably, however, despite the crying need of the real sector for cheap funds, these CBN borrowings are simply kept as idle funds, while fresh cash interventions are created to stimulate sectors of the economy, despite the subsisting systemic liquidity challenge.

    APM:-3 Without the usual naira surplus, CBN does not have to mop up liquidity by borrowing money it does not need, often with interest rates above 10 percent; consequently, the present N12tn ($60bn) oppressive debt and related service charges will become restrained; additionally, reduced government borrowing, would also naturally force commercial banks to chase the real sector for business and promote economic growth.

    CPM:-4 Since unrestrained access to excess cheap funds, will instigate spiraling inflation with adverse economic and social consequences, CBN is again compelled to respond by raising its Monetary Policy (Control) Rate (MPR) to force banks to also significantly increase their own lending rates, so that higher cost of funds would discourage borrowing, and sadly, inadvertently also reduce any prospect of industrial growth and job creation. Thus, CBN unexpectedly becomes vicariously liable for the very high cost of funds that cripple the real sector.

    APM:-4 In the absence of the usual excess naira supply, the threat of inflation and government’s costly impulsive borrowing with Treasury bills will be minimised; CBN would therefore readily reduce its MPR drastically; thus, with the reduced cost of borrowing from CBN, commercial banks will similarly drop their interest rates across board to single digit, so that businesses can access cheaper funds to finance new businesses, as well as grow existing industries with increasing employment opportunities.

    CPM:-5 Meanwhile, Ministries and State Governments, who require imports to enhance social infrastructure, become constrained to buy back their earlier captured dollars at a higher regulated rate from banks, who have strangely become the prime beneficiaries of CBN’s dollar auctions. Ultimately, naira exchange rate comes under threat as increasingly surplus naira is unleashed by CBN to chase the dollar rations it regularly auctions. Consequently, the market dynamics of demand and supply become unfavourably skewed against the naira, despite CBN’s custody of relatively impressive ‘reserves’.

    APM:-5 MDAs and State Governments can directly exchange for naira, all or portions of their dollar allocations consecutively through COMMERCIAL banks. Thus, in the absence of the usual naira surge when CBN substitutes fresh naira creations for dollar revenue, market dynamics will inevitably change to favour the naira, with relatively more dollar supply chasing the EXISTING RELATIVELY ‘STABLE’ NAIRA BALANCES. A stronger Naira rate will expectedly reduce production cost and also lower fuel prices to make subsidy totally unnecessary; furthermore, in place of wasteful subsidy, a 10 percent sales tax on cheaper petrol and kerosene could favourably consolidate over N1000bn annually into the Treasury.

    CPM:-6 The less dollars sold, the larger would be CBN’s purported reserves, but the weaker ironically also will be the naira rate, as less and less dollars become pitched against the flood of excess naira that CBN earlier instigated. Ultimately, the gap between official and black market naira rates will invariably, widen, to provide irresistible opportunities for speculation, hoarding and currency round-tripping.

    APM:-6 CBN’s usual monopolistic dollar auctions will cease, as the constitutional beneficiaries directly trade their dollar certificates for existing Naira balances with banks before spending, (since the dollar is not legal tender in Nigeria). Nonetheless, the dollars, will remain domiciled with CBN, irrespective of the ultimate buyer, until the apex bank receives appropriate instruction from respective banks to directly pay overseas suppliers of ‘authorised’ goods/services, from their dollar balances with CBN. This payment process certainly provides a more transparent usage of funds than presently.

    CPM:-7 In order to reduce the gap between parallel market and official exchange rates, the CBN commits the unforced error of allocating dollars to Bureau de Change, who in turn fund the requirements of treasury looters and smugglers of contrabands, not minding the adverse economic impact of such misguided dollar allocations; (thankfully, after seven long years of this recklessness, the CBN decided to terminate this clearly obnoxious strategy of official direct dollar sales to BDCs in January 2016).

    APM:-7 With optimal Naira liquidity and relative dollar surplus, the naira rate would gradually improve, stabilize and promote the perception of Naira as a safe store of value. Furthermore, with little motivation for round-tripping, capital flight and speculative dollar purchases, the black market for dollars will rapidly contract.

    CPM:-8 The CBN, ironically continues to maintain its forex monopoly and sits on bountiful naira and dollar reserves, while domestic and external debt accumulation and deepening poverty, inexplicably, persist, while banks, unexpectedly, simultaneously celebrate bountiful profits.

    APM:-8 Optimal Naira liquidity will invariably precipitate lower MPR, and therefore promote single digit interest and inflation rates below 3 percent, with positive knock-on impact on consumer demand, industrial consolidation as well as increasing job opportunities, with bourgeoning economic prosperity. A stronger naira will similarly drive down fuel prices and ultimately eliminate oppressive subsidies values annually.

    Sadly, the patriotic and rational fervor evident in President Buhari’s recent affirmation, at a meeting with the Nigeria community in Kenya in January 2016, that he did not see any valid reason to further devalue the Naira, may ultimately come to nothing if the increasing pressure from local and international experts and powerful interest group persists and the gap between official and parallel exchange rates further widen beyond N100/dollar.

    In conclusion, therefore, the present payment system will shunt us back to the fourth world, while the advocated model will propel us amongst the top world economies within a decade. Clearly our fate as a nation is not in our stars, but obviously in the choices we make!

    This article was first published in 18/03/2013.

    Save the Naira, Save Nigerians!

     

  • CBN injects $210m into Forex Market as Naira sells for N305/$1

    The Central Bank of Nigeria (CBN) on Monday injected $210 million into various segments of the inter-bank market as the value of naira dipped to N305.70 to the dollar at the official window.

    The naira which closed last week Friday at N305.65 to the dollar at CBN window before dropping to N305.70 also weakened slightly at Investors and Exporters window from N360.35 last week to N360.37 to dollar on Monday.

    The currency however remained stable at N364 at the parallel market. At Monday’s trading, the CBN offered the sum of $100 million as wholesale interventions and allocated the sum of $55 million to the Small and Medium Enterprises (SMEs) forex window.

    Customers requiring forex for Business/Personal Travel Allowances, tuition and medical fees, among others, equally got an allocation of $55 million.

    The acting director, Corporate Communications Department, at the Bank, Isaac Okorafor, confirming the sales, reiterated that the apex bank would sustain its interventions in the foreign exchange market. He expressed optimism that the value of the naira will continue to spike in the face of accretion to the foreign reserves and the attendant reduction in the country’s import bill.

    While also attributing the stability in the market to the Bank’s transparency and cooperation of authorized dealers, he urged all dealers to continue to play by the rule, as the CBN would not hesitate to sanction any erring bank or dealer. Meanwhile, the naira continued to maintain its stable run against major currencies around the globe, exchanging for N362/$1 in the BDC segment of the market on Monday, January 29, 2018.

  • Is CBN defending the Naira or Dollar? By Henry Boyo

    Is CBN defending the Naira or Dollar? By Henry Boyo

    By Henry Boyo

    “AS I speak to you, our external reserves stand above $31bn and that provides us with enough fire power to be able to defend the Naira (N305=$1)” (Godwin Emefiele CBN Governor, April 25th, 2017).

    However, fast forward to January 2018 with reserves above $40bn, i.e over 30% increase since April 2017, with reduction, also in exchange outflows from the ban of imports of non essentials, the naira inexplicably remains between N305-360=$1. Governor, Central Bank of Nigeria (CBN), Mr Godwin Emefiele The question, therefore is: “Is CBN actually defending the Naira?” The above title, was first published in Punch and Vanguard Newspapers on 12th January, 2015.

    A summary follows hereafter: “Evidently, the serial devaluation from stronger than N1=$1 to an abysmal low of about N70=$1, at that time, was probably, the most significant instigator of the oppressive economic challenges, induced by, the IMF imposed Structural Adjustment Programme’ (SAP).

    Nigeria’s once pulsating industrial base gradually became almost silent. The oppressive Naira devaluation reduced wages to ‘peanut’ value; consequently, the ‘check out’ syndrome became fashionable, as, well heeled professionals, and technocrats sought greener pastures abroad, in order to maintain the accustomed dignity in their lifestyles.

    Sadly, the impact of the near fatal blows from SAP has truncated our development till this day, and Nigeria is now listed as one of the world’s poorest nations. Inexplicably, despite exceptionally high crude oil prices, around $140/barrel, a while back, with the attendant bountiful dollar reserves accumulated, the economy continued to falter.

    Ironically, rising dollar reserves, and extended payments cover for our imports, have even fostered weaker Naira exchange rates, such that one wondered if less reserves would in contrast, unexpectedly induce a stronger Naira!

    However, the reduction in revenue, when crude oil prices later fell below $60/barrel, undeniably, however constituted another onslaught on the Naira exchange rate and inclusive economic growth and employment.

    Thus, in our quest for a socially and industrially supportive exchange rate, we find ourselves in a bizarre twist of “heads or tails”, we lose. Indeed, as with SAP, the embedded role of IMF technocrats in the management of our economy, also fostered the unfortunate notion that Naira rate is overvalued, even when we had best ever foreign reserves above $60bn and largely extended imports payments cover.

    Regrettably, government economic blueprints, such as NEEDS, were predicated on this obtuse mindset, that if the economy is not diversified fortuitously rising bountiful reserves, will neither induce, a stronger Naira nor growth.

    Well, today (2015), the Naira exchange rate is close to the N180=$1 projected to induce economic diversification and growth in the NEEDS blueprint, but sadly, catalytic lower rates of inflation, and cost of borrowing, with exchange rate stability which should drive inclusive growth, still remain unattainable. Certainly, no economy can perform creditably, when cost of funds, to real sector remains over 20%, while stable consumer demand, remains severely constrained with annual inflation rates of 8-12%, while Naira exchange rate, is also sliding nearer N200=$1, despite increasing dollar revenue and extended payments cover.

    Furthermore, it is clearly, financially reckless management, for any government to readily pay over N600bn as annual interest, on funds borrowed, but simply sterilized from use, despite the acute shortage of the cheap funds, required to drive real sector growth.

    Sadly, CBN and our Economic Management Teams have never been able to construct an appropriate growth model which supports low cost of funds (i.e. 3-6%), low inflation rate (1-3%), with a non-monopolistic and, open forex market that will drive the elusive quest for economic diversification and inclusive growth.

    Nonetheless, politicians, critics, and the general public are again united in singing the chorus of economic diversification, while under the illusion that El-Dorado will be attained by simply throwing billions of Naira as intervention funds at various economic sub-sectors. Indeed, in an economy with a burdensome, abiding problem of stupendously surplus Naira, such intervention funds, regrettably, simply compound the existing problem of inflation, which systemic surplus Naira sustains.

    Ultimately, the presence of such surplus funds, would instigate another kind of intervention, which compels CBN to increase its own borrowing, despite having to pay excruciatingly high and destabilising interest rates, which crowd out the real sector, from access to cheaper loanable funds, that are necessary to drive lower inflation rates and boost economic growth with increasing job opportunities.

    Clearly, the inexplicable burden of eternally surplus Naira is actually the major obstacle to achieving best practice supportive indices, required to grow and diversify the economy. Systemic surplus Naira supply is, clearly also, responsible for weaker Naira exchange rates, as CBN’s weekly auctions of modest dollar rations, are pitched, in a market, with excess Naira supply, which invariably creates an imbalance in favour of the dollar!

    Clearly, Nigerians do not interrogate the process through which CBN consolidates its so called “own reserves”! Indeed, CBN’s strategy of creating fresh Naira values, everytime it substitutes Naira budgetary allocations, for dollar denominated revenue, undeniably, induces a market imbalance of Naira surplus, chasing much smaller dollar rations; consequently, with this arrangement, CBN ironically becomes a stronger defender of the dollar, rather than the Naira exchange rate!

    Thus, the higher the dollar revenue from rising crude prices and output, the greater also would be the fresh supply of Naira that CBN would create and place in the economy as Naira substitute allocations, for the actual dollar income it earlier captured. Thus, whenever we celebrate CBN’s rising dollar reserves, we must recognise that the process of accumulating such reserves, is unfortunately, distortional, primitive and retrogressive, as it creates a paradigm of, the larger the reserves, the greater also is Naira liquidity, and the harsher and more counter-productive also, would ultimately be CBN’s monetary control measures to ironically reduce Naira supply, and restrain liberal lending and hopelessly, contain inflation, despite the harsh economic and social consequences of these measures.

    Thus, it is ironical that the CBN which instigates a market disequilibrium in favour of the dollar when it substitutes fresh Naira values for dollar denominated revenue, should later turn round, in seeming defence of the Naira exchange rate, to auction small rations of dollars in the same market, which the same CBN, had earlier inundated with excess Naira supply; unfortunately such a market imbalance will invariably always precipitate weaker Naira exchange rates, which will invariably increase fuel price, regardless of crude price and output.

    Surely, the adoption of dollar certificates for government allocations of dollar denominated revenue will eliminate or critically reduce the burden of excess Naira liquidity and therefore give the Naira a fighting chance against the dollar in the forex market.”

     

    Save the Naira, Save Nigerians!!

  • Forex: BDCs beg CBN to sell Naira at N350/$1

    Forex: BDCs beg CBN to sell Naira at N350/$1

    Some Bureau De Change (BDC) operators under the aegis of Association of Bureaux De Change Operators of Nigeria (ABCON) have appealed to the Central Bank of Nigeria (CBN) to reduce foreign exchange (forex) buying rate from N360 to N350 to the dollar.

    President of the Association, Aminu Gwadabe made the appeal on Wednesday after an emergency meeting with 3,500 CBN-licensed BDCs in Lagos. He explained that the operators’ businesses may go underground unless the CBN listens to their demands.

    He said small transaction margins charged by BDCs are not sufficient to keep their operations going, with many operators running at a loss and unable to pay their workers’ salaries.

    Gwadabe, who was represented by ABCON National Treasurer, Gbadamosi Moh-Murtala, said the CBN has also been informed on the need to change the commission on transaction of BDCs from N2 to 3.5 per cent of the transaction volume for the sustainability of their businesses.

    “We are happy that the exchange rate is appreciating. The major problem now is how BDCs can operate without making losses. Many of the BDCs are buying at higher prices and selling lower prices. They sometimes sell below CBN’s rate which is N360 to dollar. That is not event enough to cover overhead left alone profit,” Gwadabe said.

    According to the ABCON boss, the CBN should at the meantime, peg the BDCs buying rate at N358 to dollar to enable them sell at N360 to dollar while it works on longer-term plan of cutting the rate to N350 to dollar and allow them sell at N355 to dollar.

    He said the challenges faced by BDCs are enormous, as many forex users now prefer to buy their Business Travel Allowances (BTA), Personal Travel Allowances (PTAs), medical bills and school fees payment abroad through the banks instead of BDCs following the rate disparity that does not favour the BDCs. He added that the CBN could also, sell dollar to BDCs at same rate it sells to banks, since both sell to the same customers.

    He added: “Even the CBN knows that we are making losses. We are currently out of the market but we have decided not to boycott the market despite the challenges we face. It is better we dialogue. Our body language is to support government policy but while we are doing that, we want the CBN to lower our buying rate”.

    Gwadabe said the BDCs helped the government reduce unemployment rate, adding that any policy that pushes the BDCs out of the market will worsen the unemployment rate in the economy.

    He said the ABCON is also working closely with the CBN to ensure that more sources of forex to the BDCs are explored, especially in getting them to buy export proceeds.

    He however, urged operators to be transparent in their operations and file their returns accurately as such would encourage the CBN to support their operations.

    He also said the group is collaborating with the Nigerian Interbank Settlement System and the CBN to automate BDCs’ processes to enhance transparency. He said the BDCs’ can begin to access dollar from International Money Transfer Operators (IMTOs) directly if the right technology exists. “The automation allows NIBSS to confirm international passport and Bank Verification Number (BVN) authenticity of forex buyers. At ABCON, security of transactions remain our priority,” he said.

    He also said the CBN will be urged to allow operators up till March 31, to pay N250,000 annual licence renewal fee instead of the January 31 deadline set by the regulator.

    Gwadabe said the CBN and Travelex would need to take steps to ensure that the weekly forex disbursements are done on time for the security of their members. “We have told our members to reject any dollar disbursement after 3pm on the selling day. Once it is 3pm, we will abandon the money for Travelex because the security of our members is paramount,” he said.

    The ABCON boss said the group will continue to align with the CBN’s vision of providing a stable framework for the economic development of Nigeria through effective, efficient, and transparent implementation of monetary and exchange rate policy, and management of the financial sector.

  • Yuletide: Naira falls by 0.55 per cent to Dollar, now exchanges for N365/$1

    Yuletide: Naira falls by 0.55 per cent to Dollar, now exchanges for N365/$1

    …as experts predict further depreciation

    The naira depreciated marginally by 0.55 per cent at the parallel market week-on-week to close at N365 on Friday.

    The local currency had closed at 363/dollar last Friday.

    Currency retailers and analysts said the development came on the back of increased demand was occasioned by activities heralding the Christmas and New Year celebrations.

    This came despite the frequent interventions by the Central Bank of Nigeria.

    The President, Association of Bureaux De Change Operators of Nigeria, Mr. Aminu Gwadabe, said the development was part of foreign exchange market fluctuations.

    He said, “The spikes maybe as a result of the renewed political spending that is going to be a threat to naira stability; secondly, the differential exchange rates at the various official window is also discouraging genuine competition among operators which the parallel market always survived on.”

    The interbank window of the nation’s foreign exchange market had last Tuesday received a boost of $210m from the CBN.

    The interventions were made at the wholesale, the Small and Medium-scale Enterprises, and invisibles segments of the market.

    The Acting Director, Corporate Communications, CBN, Mr. Isaac Okorafor, had said the bank offered the sum of $100m to the wholesale segment, while the SMEs and invisibles segments received the sum of $55m each.

    He reiterated that the releases were meant to boost liquidity, trade and ease of remittances for legitimate personal commitments.

    According to a currency analyst at Ecobank Nigeria, Mr. Kunle Ezun, the naira will likely depreciate further this week following the suspension of the Open Market Operations by the regulator.

    He said, “Once you have interest rate at this low level, traders can avoid money to buy from the foreign exchange either for Christmas goods or to speculate. It has started from last week when naira closed against the Dollar at N365. For me, it might get to N370 if care is not taken.

    “The stop in OMO sales by CBN might be revised soon and CBN might start issuing OMO to mop-up liquidity from the system.”

    The naira also depreciated by 0.15 per cent to N360.96 at the Investors and Exporter Foreign Exchange window on Friday.

    Total volume traded in the I&E FX window for the last week stood at $579.92m against $900.50m in prior week.

    Inflows recorded during the week include Open Market Operation and Treasury Bills maturities valued at N70.83bn and N131.42bn, respectively, while outflows comprised foreign exchange and bond sales, valued at $210m and N77.59bn, respectively.

    The overnight lending rate contracted weak-on-week by 192 basis points to 4.33 per cent, following improvement in system liquidity to N855.82bn, from N78.96bn in the previous week.

     

  • Abuse naira, spend six months in jail, CBN warns Nigerians

    The Central Bank of Nigeria (CBN) on Friday warned Nigerians against abusing the naira notes.

    The apex bank said that anyone caught abusing the naira would be prosecuted and if convicted the person risked six months in jail fine of N50, 000.

    An official of the Currency Operation Department of the CBN in Abuja, Mr. Samuel Shuaibu, disclosed this in Calabar, Cross River State, during the commencement of a ‘CBN Fair’ to sensitise campaign for residents in the state on the appropriate use of the naira.

    The fair had the theme: Promoting Financial Stability and Economic Development.

    Shuaibu said that the abuse of the naira was not in line with the CBN’s policy, adding that offenders would henceforth be arrested and prosecuted.

    According to him, the awareness programme was aimed at sensitising the public on the need to accord respect to naira, online transfer system, how to identify fake currency notes, how to approach the CBN for complaints amongst others.

    He lamented the fact that Nigerians accord more respects to the American Dollar more than the naira, saying that Nigerians ought to appreciate and value the naira because it serves as a symbol of national identity.

    Shuaibu said, “The naira has suffered abuse from a majority of Nigerians. Today, we find some people spraying the naira in occasions, soiling it, writing on it, squeezing it while others are hawking it.

    “The CBN spent a lot of money in the printing of this naira notes. We urge Nigerians to respect the naira and value it. Anyone caught abusing the naira will risk a jail term of six months or pay a fine of N50, 000.”

    He urged Nigerians to desist from home banking, adding that such money could be gutted by fire outbreak or carted away by criminals.

    Also speaking, the bank’s Head of Development Financial Department, Mr. Chukwudum Nzelu, said the Anchor Borrowers Programme of the apex bank has led to an increase in the local production of rice from 30 to 70 per cent.

    Nzelu added that the CBN was also designing other agricultural programmes that would engage thousands of Nigerians youths in meaningful agricultural ventures that would make them self-reliant.

    In his comment earlier, the Branch Controller of CBN in Calabar, Dr. Graham Kalio, urged the general public to always visit any CBN branches closer to them for verification and complaints.

    Kalio, who said that the money in the CBN was kept in trust for the public for financial purposes, urged the participants to make good use of the programme by enriching themselves with the knowledge of the operation of the CBN.