The International Monetary Fund (IMF) was the first to raise the red flag over the stampeded dollarisation of Nigeria’s tottering economy. The global lender warned that the stampede in Nigeria’s foreign exchange market would worsen the nation’s devastating hard currency deficit.
Last week developments in the foreign exchange market proved that the IMF was tragically prophetic. Treasury looters reduced the naira to mere domestic medium of transaction as they and stampeded investors resorted to saving for the future in dollars.
The British pound sterling crossed the historic N1, 000 threshold as the naira tragically traded at an abysmal rate of N1,005 to the pound.
On one frenzied day last week the naira traded at N910 to the dollar before it managed to gain some grounds.
Treasury looters are to blame for the stampede in the foreign exchange market. They kicked off a chaotic search for dollars to hide their loots as the Central Bank of Nigeria (CBN) set the deadline for phasing out the current set of high denomination currencies in circulation.
Ironically, other high net worth investors have followed the trend as it dawns on everyone that the naira was on quick sand and anyone saving in it stands to lose massively as the Nigerian currency depreciates precipitously. The hard currency deficit in Nigeria’s foreign exchange market is phenomenal and no one knows how to stem it.
The decision by the CBN to redesign the naira is just a factor that escalated the demand surge in the face of a devastating supply deficit.
Nigeria is not gaining from the surge in crude oil price engendered by Russia’s unprovoked invasion of Ukraine. High velocity criminals with strong connections to the ruling class divert most of the nation’s crude oil, sell it and pocket the proceeds.
The federal government claims ignorance. However, oil industry sources insist that government is playing the ostrich if it claims not to know the oil thieves.
Besides, a disgruntled faction within the establishment blames poor timing of the naira redesign by CBN for the catastrophic depreciation of the naira.
This faction is clearly upset by the CBN move to reverse a strange situation where 80 per cent of the currency in circulation is tucked away in private homes. There are fears that the disgruntled elements may have huge stocks of naira hidden in unholy places in their homes.
They probably belong to the clique that would lose billions of naira to the monetary policy palace coup conjured by CBN. That is the only reason anyone within the establishment would oppose a policy that would give the apex bank the leverage over liquidity in the system in a desperate bid to tame inflation and stabilise the exchange rate of the naira.
The truth is that treasury looters would react precisely the way they do now even if the naira redesign was delayed for 10 years. Timing is not an issue here.
A pre-emptive strike against Nigeria’s treacherous bureau de change (BDC) operators should have been launched before the announcement of the naira redesign.
The Economic and Financial Crimes Commission (EFCC) should have laid siege to the BDCs before the CBN made the special announcement heralding the naira redesign.
The conspicuous presence of EFCC operatives in the BDCs would have delivered a stern message to treasury looters storming the BDCs to dollarise their loots. That would have sanitised the market by stemming the demand surge in the face of crippling supply deficit.
The CBN itself must ensure that it is not funding the dollarisation of looted funds by allowing foreign exchange from the official window to slip into BDCs for onward transmission to treasury looters.
The margin between the official and parallel market rates is alarmingly attractive to tempt anyone into trying something funny. At a certain point, the margin reached a record N400 per dollar. If a clique of dare-devil officials conspire to smuggle $1 million into the parallel market, they will share a bumper profit of N400 million.
EFCC takes credit for the significant gain recorded by the naira last week as it appreciated from N910 to N720 to the dollar. The thief catchers must not relent on their commendable stride. If EFCC operatives subject the BDCs to round-the-clock watch, the surge in demand would taper out and allow meaningful appreciation of the naira as fraudulent and speculative demands are fended off.
The redesign of the naira and phasing out of the notes currently in circulation will be meaningless if the loots are dollarised.
The exercise is not just about giving the apex bank the leverage over liquidity to enable it control inflation and stabilise the exchange rate of the naira, it is essentially about tracking the loots and retrieving them.
The loots will never be retrieved if they are converted into hard currencies. They will be stored at homes and rendered useless both to the looters and society.
There is something about the naira redesign policy that does not make economic sense to me. It is about the pegging of monthly deposits at N5 million for new accounts and N50 million for old ones.
By that policy, the apex bank hopes to control the level of loots successfully laundered by depositing them in banks. My assessment of the policy is that it is counter-productive. It will render a huge chunk of the loots useless to the looters and society. The apex bank should encourage everyone to deposit whatever is available with the banks.
After the money has been deposited, EFCC would scrutinise the deposits with a view to ascertaining the sources of the money.
Anyone with outrageous deposits should be asked to defend the source of the money. That is the only way to identify loots and consequently forfeit them to the federal government.
The ceiling on deposits placed by the apex bank has unnecessarily alerted the looters of the underlying reasons behind the redesign exercise. That probably explains the chaotic dollarisation rocking the foreign exchange market.