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No Longer At Ease With The Naira, 1USD Now N532 At Parallel Market, Who Should We Blame?

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In the 1970s, the naira has more value than the US dollar, but today, it’s no longer at ease – as Prof Achebe described the homecoming of Okonkwo – with the Nigerian currency.

The late icon, Prof. Chinua Achebe, was a prophet. All his works from 1960 till date paint the happenings and what could happen in Nigeria years before I was born.

If you’re a lover of Achebe’s works,  “No Longer at Ease” is a novel you would love to read over and over again.

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The novel is a story of Obi Okonkwo British-educated Igboman who returns to his village in Nigeria who found it difficult to align his African culture and Western lifestyle and ends up joining the corrupt-ridden political system.

With built-in defects in order to make a few people extremely rich and pulling millions of others into extreme poverty, naira reached a new all-time low at the parallel market or black market as the US dollar continued to gain against the Nigerian currency. At the time of publication, $1 was N532, the first time in Nigeria’s FX market.

naira reaches all time low since 1970
Photo credit: abokifx.com

Who Caused The Current Forex Crisis In Nigeria?

The governor of the Central Bank of Nigeria (CBN) Godwin Emefiele is obviously not the problem of the current pressure on the naira. It was a long-term failure put in place for the benefit of a few.

But the question I ask people who speak in his defence is:

What exactly has the former banker been doing since assumption of office as the head of the apex bank since 2014 to remove multiple exchange rate?

In fact, it’s on record that the former Finance and Insurance lecturer introduced a multiple exchange rate regime in an effort to moderate the pressure on the Naira and to avoid a series of devaluations during the 2016 oil price crash.

If he was in charge of the same ‘forex market’ in 2014 that kept the naira against USD at black market exchange rate below N200 and suddenly made its way to N532, then Nigerians should be concerned that the decision to remove multiple exchange rates which he introduced was intentionally designed to create a few billionaires.

July 27 News Policy Against Black Marketers

Since the CBN’s July 27, 2021  policy on Bureau de Change operators, which stopped the sales of forex to 5,500 BDC operators, thereby creating artificial scarcity, the naira’s struggle against other major currencies has been prominently be devastating to those whose businesses depend on forex.

The CBN harsh policy against the BDC is obviously intended to wipe their operations from the forex market.

We pointed out some of the implications of such a decision in one of our articles because we know that the policy is temporary. This is evident in Emefiele’s introduction of multiple exchange rates a few years ago.

How Long Can CBN Hold The FX Market?

If the CBN could fully implement its no sales of FX to BDC operators, the current trouble of Naira against Euro, Pounds, and dollar would be temporary, but I don’t see this happening.

Since the introduction of the multi-exchange system, the parallel market has seemingly got more power than Emefiele imagined.

To maintain the status quo has become an issue because those who knew little about forex were motivated by the millions of naira that could be generated within a few hours through illicit means summarily applied for BDC operating licences despite the cost implications.

The CBN alluded to this when it says BDC operators were agents of money laundering for corrupt individuals. The apex bank would not mention names, thereby making transparency an issue.

CBN Not Worried About Naira Valuation But FX Supply

While the apex bank continues to divert the $20,000 weekly supply initially for each of the BDC operators to the commercials banks, the parallel market continues to face the negative FX direction.

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This has not only affected businesses, but it has also further exposed the failure of those at the management of Nigeria’s forex.

But the apex bank says it isn’t worried about naira valuation, but more worried about forex supply.

“We are not really bothered much about valuation. What we are worried about is the supply side and the confidence in the system,” Chijioke Ohuocha of Reuters quoted  the director of CBN monetary policy Mr. Hassan Mahmud as saying on Tuesday, September 7, 2021

Recall, the CBN directed financial banks to sell FX to Nigerians who need them for Personal Travel Allowance (PTA), Business Travel Allowance (BTA), foreign medical bills, and settling of foreign school fees.

Plan To Jeopardise Emefiele’s Effort

The new order on PTA and BTA has also exposed another defect in the system as some Nigerians reportedly bought fx at banks with forged air ticket and fake visas.

They sell the same at black market rate to rake in some millions of naira, the Emefiele-led CBN in confirmation of this directed banks to publicly expose those who defaulted on the laid down FX policy.

Up till now, no names of defaulters have been made public, does this mean the heavyweights are involved?

It’s obvious that some people are working behind the scene to render the effort of the CBN fruitless. They are out to paint a picture of “without the BDC, Nigeria’s foreign exchange would be a failure.”

The question remains, for how long would CBN maintain its stringent policy against multiple exchange rates?

BDC Operators Groan as CBN’s FX Policy Continues

It seemed like the BDC operators could survive the CBN heat when the President of the Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadabe, on July 29, 2021, boasted that his members could source FX from several sources which we highlighted in our article at: https://infomediang.com/sources-of-forex-bdc-operators-nigeria

But he has changed tune, saying the things are becoming tough for them as 40, 000 jobs could be lost if the CBN doesn’t rescind its decision against them.

The CBN was allocating $5.72 billion to BDC operators yearly until July 27 to 5,500 BDC operators, each of them was getting $20K every week.

Daily Trust quoted Gwadabe  as saying “In all the BDCs remained the potent tool for CBN exchange rate stability instruments and accessibility.”

Wrapping Up

There are two sides to the decision of the CBN to eliminate multiple exchanges predominately operated by the BDC operators

Positive side: If the CBN can maintain an adequate supply of fx to the designated banks that handle forex and eliminate dubious handling, we’re likely to see the market adjust positively to the new system.

But then, an economy that is largely dependent on importation will find it tasking to fully remove black market operation.

If they can’t supply enough to the bank, users would have no option to source the parallel market.

This means Emefiele is only postponing the evil days. It is just a simple principle of demand and supply

Negative side: BDC operators will lose jobs thereby complicating the already volatile job market in Nigeria.

Above all, CBN has to keep a close eye on bank officials because they know how to exploit any loopholes in the FX market.

At the time of this report, $1 was N532; £1 was N727; €1 was N626; 1 CAD was N420; 1 UAD was N310; 1 GHS was N90.

Will Naira be ever N1 to $1 as promised by the APC-led government of President Muhammadu Buhari before the 2015 General Elections?

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