[size=14pt]Naira Slumps as Nigerian Central Bank Aims to Protect Reserves [/size]
http://www.bloomberg.com/apps/news?pid=20601116&sid=aWN4m1lPMl48


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July 31 (Bloomberg) -- Nigeria’s naira declined to its weakest level in at least 15 years as the central bank limited supplies of dollars at its weekly auctions to protect the West African nation’s foreign reserves, according to Citigroup Inc.

The naira slipped to 156.85 per dollar by 11 a.m. Lagos time today, Citibank said in a client note. That’s the weakest level since at least 1994, according to Bloomberg data. Nigeria’s central bank manages the naira exchange rate by controlling the amount of dollars it supplies to commercial lenders at auctions held on the Monday and Wednesday of each weak.

The Central Bank of Nigeria sold $183.7 million to commercial banks at its most recent auction on July 29, below the $604.84 million demanded on that day, Citigroup said in the note. Declines in the naira sparked “panic” sales of naira for dollars by Nigerian businesses “who fear the local currency could dip further and hurt their operations,” the note added.

“The central bank simply isn’t meeting the demand for dollars in Nigeria at its bi-weekly auctions,” Leon Myburgh, a fixed-income and currency strategist for sub-Saharan Africa at Citigroup, said in an interview from Johannesburg. “We suspect it’s because they don’t want to run down their foreign reserves.”

Nigeria’s foreign reserves slumped 19 percent to $43.2 billion on July 3, compared with $53 billion at the end of December, Governor Lamido Sanusi said on July 7. The naira has lost almost a quarter of its value since the end of November last year when the global financial crisis first began, sparking a slump in the price of oil, which accounts for about 90 percent of Nigeria’s export revenue.

Oil traded at $66.92 a barrel in New York today, almost 54 percent below the record $147.27 a barrel it reached in July last year. Nigeria vies with Angola as Africa’s biggest crude exporter, according to OPEC data.


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Protecting reserves at the expense of the people's well being.
Nigeria is a consumption nation, and with high $$, i hope they know most things will be out of the reach of the masses, and now what will be the use of the Reserves.

our government wants to eat their cake and have it. No, it's not possible.

If we refuse to encourage the real sector of the economy and lazy around with importation, then we must be prepared for either of reserve depletion and/or naira devaluation.

somethings not correct.

During Abacha time(1995-1998), it was N89 to $1.

We had little or no foreign reserve and the debt was about $24billion.

so why is Naira now N156 to $1 when we had debt of $3billion and reserve of $43billion?

It just does not make sense!

back2back:

somethings not correct.

During Abacha time(1995-1998), it was N89 to $1.

We had little or no foreign reserve and the debt was about $24billion.

so why is Naira now N156 to $1 when we had debt of $3billion and reserve of $43billion?

It just does not make sense!

its only makes sence to them

Is this how SANUSI is restoring confidence in the Nigerian money market? I thought he promised to
restore confidence in the market as soon as he steps into the CBN mantle.

There is some high degree of fallacy in this article. I thought sometime in April it was above N170 per dollar and Charles told the Senate that it was strategic.

Oh, give me a break whining moaners!!!

I don't know much about economic policy settings, so instead of giving me some monolithic ranting can you each individually state what Sanusi should be doing and why (i.e. consequences) instead of just condemning what he is doing without giving an alternative.

Demonstrate your education, show you are not a lame arse armchair critic. Surely if you are condemning him, you must have at least an inkling of what is superior alternative, otherwise, shut up.^{See my signature!}

Sagamite

I'm an economist, not by training but what I've learnt through self education.

To strengthen the Naira, the CBN has to review Nigeria's foreign reserves. Why have 43 billion in dollars when a large percent of our imports are now coming from China and also the EU? Why not have 50 billion yuan and 10 billion euros then the remainder about 20 billion in dollars. Why hinge our Naira on the dollar? If the dollar should collapse today, what happens?

I hope you see that as a solution.

Then everybody doing business in Nigeria should be paid in Naira, the only exemption should be when they import large quantities of raw materials.

Thirdly, which solution is very radical, is that Nigerian exports should be paid for in Naira. When there is a large quantity of foreign currency coming from abroad to change to Naira in order to buy crude oil, the value of the Naira will strengthen whether we like it or not. Whenever there is large demand for anything, the value automatically goes up.

Finally, the Nigerian Printing and Minting Company should be brought back to its full function. Imagine printing N20 note for $5 (N750), then estimate the number of billions of notes to be printed, you have to take out huge amounts of Naira, convert it to dollars, and finally go out to print notes that are 35 times less in value than what you printed them for. Each time you convert Naira to billions of dollars which is sent abroad for the acquisition of goods or services, the Naira depreciates. Sometimes the effect does not reflect instantly, but on the long run, it does.

I know my hood economics is not like what they teach Soludo and Sanusi in their fancy schools, but they make mistakes I never would. Like Charles going to mint coins for us with billions of dollar. That's just insane. Who uses coins in Nigeria?

There's little or nothing Sanusi can do in this case. If he ever promised to stabilize naira, he probably did so from an uninformed point of view.

It's the same demand-supply-price principle.

Since we depend largely on importation for our needs, the demand for dollar will continue to increase and supply depends on foreign exchange earning. If there's a shortfall in what the market can supply and the foreign reserve is being depleted, all in the name of stabilizing the price, a time will come when you have look away from the reserve and this jerks up the dollar rate.

The solution still lies in stimulating the real sectors of the economy.

nex:

Sagamite

I'm an economist, not by training but what I've learnt through self education.

To strengthen the Naira, the CBN has to review Nigeria's foreign reserves. Why have 43 billion in dollars when a large percent of our imports are now coming from China and also the EU? Why not have 50 billion yuan and 10 billion euros then the remainder about 20 billion in dollars. Why hinge our Naira on the dollar? If the dollar should collapse today, what happens?

I hope you see that as a solution.

Then everybody doing business in Nigeria should be paid in Naira, the only exemption should be when they import large quantities of raw materials.

Thirdly, which solution is very radical, is that Nigerian exports should be paid for in Naira. When there is a large quantity of foreign currency coming from abroad to change to Naira in order to buy crude oil, the value of the Naira will strengthen whether we like it or not. Whenever there is large demand for anything, the value automatically goes up.

Finally, the Nigerian Printing and Minting Company should be brought back to its full function. Imagine printing N20 note for $5 (N750), then estimate the number of billions of notes to be printed, you have to take out huge amounts of Naira, convert it to dollars, and finally go out to print notes that are 35 times less in value than what you printed them for. Each time you convert Naira to billions of dollars which is sent abroad for the acquisition of goods or services, the Naira depreciates. Sometimes the effect does not reflect instantly, but on the long run, it does.

I know my hood economics is not like what they teach Soludo and Sanusi in their fancy schools, but they make mistakes I never would. Like Charles going to mint coins for us with billions of dollar. That's just insane. Who uses coins in Nigeria?

Thanks, nex. Good plausible points.

I will just slightly raise a few points in regards to printing of money. From my readings it appears it would be more expensive and less efficient to bring that back to Nigeria because of lack of electricity, hence we will be spending more to print a N20. I also guess economy of scale will play a significant part in this printing (i.e. the more you print the less per unit cost will be).

And I would not be surprised if Soludo printed coins to stimulate some activities. I trust his intelligence.

What are his aces and backups for his actions or intending action. Any?

@Sagamite

believe me, Soludo minted coins for nothing. If he didn't, the coins would have been in regular use by Nigerians and not in some storehouses in the CBN headquarters.

Soludo also called for all banks in Nigeria to remove their ATMs from public places. Which I believe Sanusi is following up on.

During the consolidation of banks, Soludo advised banks to give out loans to the public to purchase their shares. Hence the stock market crash of today (remember, our stock market started to crash early 2008. Far before the global meltdown).

I don't trust in his intelligence.

back2back:

somethings not correct.

During Abacha time(1995-1998), it was N89 to $1.

We had little or no foreign reserve and the debt was about $24billion.

so why is Naira now N156 to $1 when we had debt of $3billion and reserve of $43billion?

It just does not make sense!

which rate are talking about? There was a parallel rate at that time, if I recall. What it meant was while you pay #22 to $1 officially, in the open market, it could be as high as possible.

nex:

Sagamite
To strengthen the Naira, the CBN has to review Nigeria's foreign reserves. Why have 43 billion in dollars when a large percent of our imports are now coming from China and also the EU? Why not have 50 billion yuan and 10 billion euros then the remainder about 20 billion in dollars. Why hinge our Naira on the dollar? If the dollar should collapse today, what happens?
I hope you see that as a solution.

Even China wants their own debate to paid in dollar. Many countries including China buy and hold so much US treasury bonds that they wouldn't want anything to change very drastically.

naijaking1:

Even China wants their own debate to paid in dollar. Many countries including China buy and hold so much US treasury bonds that they wouldn't want anything to change very drastically.

I support that.

China has started offloading its dollar holdings, prefering short term US Treasury bonds to the long term ones it currently holds to the tune of $1.5 trillion (govt debt).
Admitedly, this will take some time as world's highest foreign exchange reserves at $2 trillion (yes, in dollars). Also, the US owes China $800 billion (public debt).

China has recently started trading in Yuan within the ASEAN area to reduce its reliance on the dollar.

The dollar will lose ground, but not quite yet. The figures of China's dollar assets alone, are just too massive.

nex:

@Sagamite

believe me, Soludo minted coins for nothing. If he didn't, the coins would have been in regular use by Nigerians and not in some storehouses in the CBN headquarters.

Soludo also called for all banks in Nigeria to remove their ATMs from public places. Which I believe Sanusi is following up on.

During the consolidation of banks, Soludo advised banks to give out loans to the public to purchase their shares. Hence the stock market crash of today (remember, our stock market started to crash early 2008. Far before the global meltdown).

I don't trust in his intelligence.

This is one policy by Soludo that I do not understand, and more shocking that Sanusi is sticking to the policy.

This is going to lead to monopoly of ATM's by one company because, as of right now only one independent operator (not bank) is in Nigeria. This will lead to them charging anything for people to redraw money.

I would not be surprised if an "individual" is behind this policy and has something to gain by having monopoly.

LOL, a tad amusing especially since it reminds me of a particular topic whereby a certain poster in the topic thread was postulating that solely foreign exchange (in terms of import and export) affects value of Naira. https://www.nairaland.com/nigeria/topic-275465.0.html

Fhemmmy:

Protecting reserves at the expense of the people's well being.
Nigeria is a consumption nation, and with high $$, i hope they know most things will be out of the reach of the masses, and now what will be the use of the Reserves.

Well put and hits the heart of the matter in just two sentences : ) This seems to be a compromise and putting the pockets of the government before the people, as simple as that. But what else would be expected in current Nigeria though? Forget how it should be, in Nigeria is the CBN really working for the benefit of the people or the benefit of the government especially in Nigeria the government does not represent the people?

fyneguy:

our government wants to eat their cake and have it. No, it's not possible.

If we refuse to encourage the real sector of the economy and lazy around with importation, then we must be prepared for either of reserve depletion and/or naira devaluation.

Couldn't agree more, all this results to is putting a band aid on a leg requiring amputation. To be honest the foreign reserves might become a crouch and dead weight if all that is done by the CBN is working out policies to protect money that the government doesn't seem to have any plans of using to improve things like infrastructure or even fix the power problem, such things that will actually drastically make a difference to the real economy and potentially improve confidence in the Nigerian market and greater confidence in the Naira.

Hate to point it out but once again part of the blame lies on the federal government for such uneccessary confusion, lack of guts and misdirection. We have money in the foreign reserves not being spent on anything which could improve the quality of the business environment, and a CBN that is set on protecting this money instead of potentially putting the money in the hands of the people to better their lives since the federal government doesn't want to. If this continues prepare for further inflation because Nigeria pretty much imports everything, even rice.

It is inevitable that this will happen –

In a nutshell:

Nigerian Foreign Reserve = Crude proceeds (90%) + other Export&Taxes (10%) – Import
• Crude Proceeds ($) = Gross Sale (100%) - Niger Delta disruption (25%) – Misappropriation (Fed & State possibly (~20%))
• :. Crude Proceeds is then ~ 45% less

Restricting FOREX equates to reducing foreign Importation – when the dollar is high import oriented businesses will defer purchases to more favorable periods.

This would be a sound economic strategy if only the government is less corrupt, and other potential revenue streams are developed in order to boost export. Unfortunately this’ not the case – infrastructure and institutions put in place to ensure sound economic growth are dilapidated and marred with mismanagement and corruption.

Total resource control will not happen in Nigeria unless other revenue streams are available to elevate other non-oil producing states. The North which occupies possibly 60% of the land area of Nigeria has almost zero export revenue streams.

Amnesty for MEND, and their request for housing for members ONLY, completely falls short of a plausible resolution. What about the other millions living in the Niger Delta – they will ultimately be the MEND of tomorrow. There’s really no quick fix for the problem in Nigeria – the political oligarchy are just making their normal outrageously lucrative rounds – yesterday it was OBJ; today Yar’Adua; and tomorrow another one. This will go on indefinitely – why? You ask, “The populace lack the will to fight back”.

JamesG:

It is inevitable that this will happen –

In a nutshell:

Nigerian Foreign Reserve = Crude proceeds (90%) + other Export&Taxes (10%) – Import
• Crude Proceeds ($) = Gross Sale (100%) - Niger Delta disruption (25%) – Misappropriation (Fed & State possibly (~20%))
• :. Crude Proceeds is then ~ 45% less

Restricting FOREX equates to reducing foreign Importation – when the dollar is high import oriented businesses will defer purchases to more favorable periods.

This would be a sound economic strategy if only the government is less corrupt, and other potential revenue streams are developed in order to boost export. Unfortunately this’ not the case – infrastructure and institutions put in place to ensure sound economic growth are dilapidated and marred with mismanagement and corruption.

Total resource control will not happen in Nigeria unless other revenue streams are available to elevate other non-oil producing states. The North which occupies possibly 60% of the land area of Nigeria has almost zero export revenue streams.

Amnesty for MEND, and their request for housing for members ONLY, completely falls short of a plausible resolution. What about the other millions living in the Niger Delta – they will ultimately be the MEND of tomorrow. There’s really no quick fix for the problem in Nigeria – the political oligarchy are just making their normal outrageously lucrative rounds – yesterday it was OBJ; today Yar’Adua; and tomorrow another one. This will go on indefinitely – why? You ask, “The populace lack the will to fight back”. 

Quite interesting to see the ammount of extrapolation required to draw the conclusion that the current situation with regards to the naira is directly tied to ammount of crude oil exported as opposed to a simple case of limiting the supply of the dollar hence the value of the dollar going up. It really isn't that complicated.

Most important part of article:

Kobojunkie:

http://www.bloomberg.com/apps/news?pid=20601116&sid=aWN4m1lPMl48

The Central Bank of Nigeria sold $183.7 million to commercial banks at its most recent auction on July 29, below the $604.84 million demanded on that day, Citigroup said in the note.

Nigeria Limits Currency Trading to Halt Naira Slide

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Aug. 4 (Bloomberg) -- Nigeria’s central bank ordered banks to stop trading foreign currencies purchased at its auctions in a bid to stop a further weakening of the local currency as increasing political risk sparks a rush for the dollar.

Funds bought at the twice-a-week auctions are no longer “transferable” on the interbank market, the Abuja-based Central Bank of Nigeria said today in a statement on its Web site dated Aug. 3. Neither can the currency be sold to other outlets such as foreign-exchange bureaus and hotels, it said.

It followed the re-selling by lenders on the interbank market at a premium funds they had purchased at a cheaper rate from the central bank, the statement said. The naira has fallen 4.8 percent against the dollar since July 13.

The aim of the central bank is to “keep the exchange rate within check,” said Abdulhakeem Muhammed, a currency trader at the local unit of Citibank in the commercial capital, Lagos. “This will only hold for as long as they can keep their supply at close to the aggregate demand” at the auctions, he added.

The central bank yesterday boosted its sales of foreign currency to commercial banks, offering $600 million at an auction, Citibank said. The naira gained 0.8 percent to 155.43 naira to the dollar yesterday.

Last week, the bank sold only $400 million of foreign exchange, compared with the $1 billion demanded by local banks, Citibank said in an e-mailed note yesterday. The limited dollar sale pushed the naira to a 15-year low against the dollar on July 31.

Foreign Reserves

The west African country may be guarding against further depleting its foreign reserves which stood at $43.2 billion on July 30, compared with $53 billion at the end of December.

The naira has lost almost a quarter of its value since the end of November 2008, when the global financial crisis triggered a slump in the price of oil, which accounts for about 90 percent of Nigeria’s export revenue.

Africa’s most populous country, is vying with Angola to be the continent’s top oil producer. It lost the position as a result of attacks by militants in the oil-producing Niger Delta area, which have cut more than 20 percent of its crude exports since 2006.

The currency depreciation also reflects “recent rises in political risk,” Richard Segal, an analyst at London-based fund manager UBA Capital Ltd., said in an e-mailed note. Demand for dollars will normalize “if and when these political issues are resolved,” he said.

Violence claimed about 700 people in northern Nigeria last week in clashes between security forces and an Islamic sect that opposes Western-style education, the Associated Press reported on Aug. 2.

The fighting broke out about a month after President Umaru Yar’Adua announced a pardon for the militants in the Niger Delta in a bid to end their crippling attacks on oil facilities.



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Simply put,there is so much Naira chasing a dollar. Therefore making Naira lose its value as compared to dollar. You could also devalue your currency to stimulate export as in the case of china and our neighbor Ghana. The Naira would have been fine as it is if only we have other things to export apart from the God forsaken crude oil.

frag:

Simply put,there is so much Naira chasing a dollar. Therefore making Naira lose its value as compared to dollar. You could also devalue your currency to stimulate export as in the case of china and our neighbor Ghana. The Naira would have been fine as it is if only we have other things to export apart from the God forsaken crude oil.

frag, there is no reason to wanna devalue Naira, cos Nigeria is a consuming nation and that means people will suffer, cos the price of everything will hit the roof

Fhemmmy:

frag, there is no reason to wanna devalue Naira, cos Nigeria is a consuming nation and that means people will suffer, cos the price of everything will hit the roof

We are saying the same thing.

frag:

We are saying the same thing.

Yes oh, Nigeria would have enjoyed the slump of Naira, if we have constant Light.
Cos companies would have moved their operations to Nija, cos of cheap labour, but when they will have to spend all money on generating electricity via generator and worry about security and no good road to transport finished goods or even raw materials?