Until the Central Bank of Nigeria (CBN) intervened in the foreign exchange transactions by way of injecting unprecedented volume of the United States dollars into the market in dizzying successions, our local currency was on a free-fall against the dollar.
Prior to the CBN’s masterstroke, obtaining the US dollars for importation of essential goods and services was like striking water from a flinty rock. The dollar was not only scarce but it also became the exclusive preserve of the highest bidders, mostly mindless extortionists.
The foreign exchange market was lord unto itself dictating and forcing bitter pills down the throats of persons, institutions and others that needed foreign currency for business and other essentials. At some stage, a dollar was as high as N550 at the parallel market, notwithstanding the official rate of N289 per dollar at the CBN and commercial banks.
However, even at these banks, the currency was hardly available, thereby compelling inflation of its price wherever and whenever those in possession of the dollar chose to make it available for sale.
In fact, the forex movement was so uneven that not a few were of the contention that the market was not just abused but willfully manipulated by operators who persistently conspired to weaken the naira, subsequently bringing the Nigerian economy to its knees.
The need for the foreign currency was high and it swiftly responded to the law of supply and demand as travellers required BTA; parents had school fees of their wards to pay, industries regularly required it for importation of raw, refined and fabricated tools; individuals needed it for medical tourism and other essential materials and services, among others.
Though the CBN had warned the operators against imposing artificial scarcity of the foreign exchange by maintaining that the persistent scarcity that forced high demand was a bubble created by speculators and hoarders of the dollar, the fact that it had remained hard to come by made the warning an empty threat.
Inevitably, the intervention amounted to good riddance of a hideous and wicked system and liberated the naira and the Nigerian economy from strangulation. However, there seems to be a consensus that the intervention is feeble, requiring cerebral and shrewd approach to the forex regime to forestall manipulation by bureaus de change and some bad elements in the banking sector.
Some experts have picked holes in the intervention. For instance, they have argued that although the CBN circular that announced it had restricted banks from exceeding its Net Trading Position limit at any particular time under the new FX regime pegged the allowable spread between bid and offer at 50 kobo, required banks to open equivalent amounts of fresh LCs (confirmed or unconfirmed) for any of their customers and forbade multiple bid entries, chances for circumvention of the directives abound.
Blueprint believes the CBN should do more than sanction defaulters of the rules of the special wholesale window and other extant forex guidelines. It should adopt severe punitive measures including prosecution and jail terms because abuse and manipulation of the forex market amount to economic sabotage. This will serve as a deterrent to those harbouring such retrogressive tendencies.
We think the intervention is a temporary measure and not the panacea for a healthy and sustainable currency. The federal government should assist the CBN with sufficient foreign currency by withdrawing from the external reserves and pumping same into the market to reduce the scarcity of dollars. This should sustain the forex regime at more commensurate rates to strengthen the naira against the dollar.
We subscribe to the views of the Director General of the West African Institute for Financial and Economic Management, Prof. Akpan Ekpo, that the CBN should adopt measures to tackle the misalignment between the official and parallel market rates, as well as create access to forex by ensuring that banks open retail offices at airports and other strategic locations.
He said, “I am advising that the CBN should continue to prioritise forex access to manufacturers so that they can import raw materials and equipment. But in the long term, we cannot keep importing the things that we can produce here. If you look at the data, imports have reduced due to the removal of those 41 items from accessing forex.”
Beyond palliative interventions, the federal government must be proactive in the pursuit of its reforms and diversification of the economy from oil-dependent to multiple sources, thereby multiplying sources of revenue and rescuing the country from the vagaries of a mono-economy.
