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”

–Godwin Emefiele (Governor, Central Bank of Nigeria, April 25, 2017).



The question, however, is this: Is the CBN actually defending the naira? This question is addressed in the above title, which was first published in The Punch and Vanguard newspapers on January 12, 2015. Please read on:

The serial naira devaluation, from N1=$1 to almost N70=$1, was probably the most significant instigator of the oppressive economic challenges induced by the International Monetary Fund-imposed Structural Adjustment Programme. Nigeria’s once pulsating industrial base soon became almost silent, with increasing idle capacity and unemployment.

Worse still, all wages and incomes were reduced to ‘peanut’ value by the twin bullets of naira devaluation and inflation. Ultimately, the ‘check out’ syndrome became fashionable, with well-heeled professionals and technocrats seeking greener pastures abroad to sustain dignity in their lifestyles; the brain drain, particularly amongst youths, now approaches epidemic proportions. Undeniably, the near fatal blows from SAP truncated our development and we are now listed amongst the world’s poorest nations.

Curiously, however, the exceptionally high crude oil prices, which once hovered between $100-$140 per barrel, and the bountiful dollar reserves accumulated, did not redeem our economy or improve social welfare. Unexpectedly, increasing dollar reserves, which provided extended payments cover for our imports, inexplicably, continued to foster weaker naira exchange rates, such that one was forced to wonder if less dollar reserves would actually stimulate a stronger naira.

Well, crude oil prices have since receded below $60 per barrel, but the reduced dollar revenue, has also, undeniably, constituted another major onslaught on the naira exchange rate and economic progress.

Thus, it seems that, in our quest for increased foreign reserves and socially and industrially supportive exchange rates, we now find ourselves in a bizarre twist of “heads you lose, tails I win”. Indeed, as with SAP, IMF is also presently leading the call for further naira devaluation.

The IMF technocrats, embedded in the management of our economy, have also deliberately fostered the unfortunate notion that the naira is actually overvalued, even when we had custody of the best ever foreign reserves and more extended imports payments cover. Regrettably, government economic blueprints, such as the National Economic Empowerment and Development Strategy, were predicated on the erroneous mindset that inclusive growth cannot evolve, unless the economy is first diversified; there is also the unfortunate premise that fortuitously bountiful reserves cannot induce, a stronger naira exchange rate.

Well, today, the naira exchange rate is closer to the N180=$1 projected in the NEEDS blueprint to drive economic diversification and growth. Ironically, however, enabling rates of inflation, cost of borrowing and exchange rate stability still remain, sadly, unattainable.

Certainly, no economy can succeed when the real sector is constrained to borrow at over 20 per cent interest rate, while consumer demand also remains severely hamstrung with annual inflation rates of 8-12 per cent, or indeed, when the naira rate keeps depreciating, despite buoyant reserves and extended import payments cover; furthermore, economic growth and diversification will invariably remain elusive, wherever government knowingly pays over N600bn interest (over 10 per cent) on loans that are simply sterilized from use, despite the crying need of the real sector for cost of borrowing to fall below seven per cent.

Sadly, the CBN and our economic management teams have failed to construct an enabling foundation that will support low cost of funds (3-6 per cent), low inflation rate (1-3 per cent) and a truly liberalised non-monopolistic forex market that will drive the elusive quest for economic diversification and inclusive growth.

Nonetheless, politicians, experts, and a gullible public are once again chorusing the need for diversification, and as usual, with the unfortunate misconception that we will approach El Dorado by simply throwing hundreds of billions of naira at various sub-sectors as intervention funds.

Indeed, in an economy with an abiding burdensome problem of stupendously surplus naira, intervention funds, regrettably, only make things worse as they simply compound the problem of eternally surplus naira when disbursed.

Ultimately, the intervention funds will instigate another kind of government intervention, which compels the CBN to step up its rate of borrowing to mop up increasingly surplus naira despite the excruciating, destabilising and distortional interest rates which crowd out the real sector from loanable funds, notwithstanding the collateral adverse consequences on inflation, the naira exchange rate, inclusive growth and job creation.

In practice, micro and small enterprises are probably worst hit, as they generally struggle to obtain loans that are as oppressive as six per cent per month or 72 per cent annually.

Clearly, the unyielding burden of ‘eternally’ surplus naira is actually the major obstacle in the path of creating those supportive indices which can effectively drive growth and economic diversification. Regrettably, we have remained in denial of the process through which the CBN consolidates its so-called and celebrated ‘own reserves’.

Instructively, the CBN’s reserves are accumulated by capturing distributable dollar derived revenue and substituting freshly created naira values as monthly statutory allocations to government. This arrangement invariably increases the CBN’s cache of dollars, but it sadly induces the burdensome spectre of surplus cash in the economy.

Furthermore, the pitching of such eternally surplus naira against rationed auctions of dollars will ultimately and unwittingly protect the dollar market value against the naira. Consequently, the CBN may have inadvertently (or deliberately) become a greater defender of the dollar than the naira in the forex market.

Ironically, therefore, the higher and more bountiful the dollar revenue (from high crude prices and output) the greater also will be the fresh supply of naira that the CBN will create and unleash on the economy as substitute allocations for dollar derived income. Thus, whenever we celebrate the CBN’s rising dollar reserves, we must recognise that the consolidation of such reserves, unfortunately, also ultimately precipitates an increasing spread of surplus naira or excess liquidity in the money market.

Invariably, the greater the naira liquidity, the harsher and more counter-productive would be CBN’s monetary control measures to reduce naira liquidity, so as to restrain inflation and the ability of banks to expand credit to customers, despite the adverse economic consequences of such restrictive policies.

It seems farcical, therefore, that the same CBN whose monetary management actually intimidates and pulverises its own child, the naira in the forex market, can also be so wrongly and favourably perceived as defending the naira from its accumulated self-styled ‘own reserves’, which instigated the ‘curse’ of surplus naira and it train of adverse consequences in the first place.

It is ironical that the same agency, which sustains a market disequilibrium in favour of the dollar when it substitutes fresh naira values for dollar denominated revenue, would later turn round, in apparent defence of the naira exchange rate, to regularly auction fractions of the dollar cache that it earlier captured, after it has substituted and suffocated the market with surplus naira liquidity. Unfortunately, such unceasing and pervasive naira liquidity consciously unleashed by the CBN, invariably precipitates weaker naira exchange rates when eventually pitched against dollar rations auctions by the CBN from its reserves.

In this event, the CBN must immediately stop digging itself into a deeper hole with a naira defence strategy that has consistently worked against the local currency over time to deepen poverty. Surely, the adoption of dollar certificates for allocating 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.

Besides, the elimination of the oppressive burden of excess naira liquidity will also induce lower rates of inflation and the cost of borrowing to leave the door wide open for inclusive economic growth, economic diversification and rapidly increasing job opportunities.” (January 2015).

Fast forward to April 2017: Reserves are over $30bn; inflation is rising at 17 per cent plus; real sector borrowing has increased by over 20 per cent; N305-N400=$1, unemployment still rising, while excess liquidity remains unyielding! Heaven help us!

Lalasticlala

http://punchng.com/is-cbn-defending-the-naira-or-dollar/

Watch below


BABU ordered CBN not to defend any of them ,But allow them to engage in Battle of Fittest in order to determine their strenght"POUND for POUND"


Modify

Front House Guwarad by me
I acknowledgly Dedicate it to all
KiVuKians and Nairalanders.


Gyarbonka

Hmmm, I am tayad fa wallahi

CBN still dey exist?

Don't even know what my people want,they would cry when dollar is 520 that government is doing nothing
They wont stop crying either when dollar is 380 saying government is doing too much
Black man with black brain
CHINA has been using this artifical means to control Yuan for over a decade now,reason they call them currency manipulator

gfd

Let's ask Baba in za oza room

Perusing

President Buhari is no longer in charge.. All of them are incompetent... Emefiele ..Adeosun.. Bubu..

I bet 98% of nairalanders will never read this long write up.

I all I need is usd @ 200 back

Jamb Question

it's defending the dollar

[quote aputhor=spidey77 post=56087963]gfd[/quote]
Look at yew

Cant just tell what is happening.

Wait, Lemme go and ask Emefiele himself.

Ayam coming but if I read d story from A-Z just quote me with the summary

31billion is not worth his complacency. Instead of them to make efforts to keep the foreign reserves growing into hundreds of dollars

Who punch dey ask?

If they had taken this drastic measures when the naira was downswing, I wouldn't have gotten to this extent.. We shall more grease to their elbows

Dottore:
31billion is not worth his complacency. Instead of them to make efforts to keep the foreign reserves growing into hundreds of dollars

How would you feel if $=600 naira? can't you guys use brain we are not the only country defending currency

The battle of the naira isn't an economic warfare but rather an ideological And political battle.

The elites especially those in the BDC business and banking system benefit from this.

Please tell me what stops the government from scrapping BDC and allow us get dollars directly from the Banks where it can be properly monitored and controlled.

The Banks will get from CBN at 305 and sell to BDC at 370/375.

Now tell me who is doing who

jj

fatymore:
President Buhari is no longer in charge.. All of them are incompetent... Emefiele ..Adeosun.. Bubu..

Who is competent then?

bettercreature:
Don't even know what my people want,they would cry when dollar is 520 that government is doing nothing
They wont stop crying either when dollar is 380 saying government is doing too much
Black man with black brain
CHINA has been using this artifical means to control Yuan for over a decade now,reason they call them currency manipulator

the problem of the naira is not the west, the CBN or the real sector. The real problem is the polithievians. What do we expect? That the naira to be at par with the dollar? When there is so much stealing of our revenue? When the income we make is meant to be put on infrastructure, education and technology, some few embezzled it, they embezzled more than they ever need, and you expect development.

The naira can only gain strength when money meant for building road is used for building road. For instance, we engage Julius Berger to build a 10km road and some corrupt bastards do not demand bribe from them even if JB are so wicked that they get 80% of the workforce from German, 20% will still be Nigerians and this 20% and their family will benefit but when money meant for roads are diverted to private pockets?

See the armsgate issue we have. Isn't another money been taken to buy the arms now? When what was stolen under GEJ alone is enough to eliminate ISIS not to talk of Boko haram.

Unless we SINCERELY deal with corruption, forget it nothing will happen to the naira even if we flood the market with dollars.

We have to kick Buhari out of Aso Rock first. That man is a failure and a bad luck

Not as if these guys hate us..

They dont even know what to do.

if punch ask me, na who I go ask?

bettercreature:
Don't even know what my people want,they would cry when dollar is 520 that government is doing nothing
They wont stop crying either when dollar is 380 saying government is doing too much
Black man with black brain
CHINA has been using this artifical means to control Yuan for over a decade now,reason they call them currency manipulator

What are you saying. Let them return the rate where they met it. Or they should allow it to rise to 1000 NGN and then control it back to 900 NGN, then we will be happy they tried. Get sense. You and FG are the confused ones.

Kudos to anyone who read all that

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How many Nigerians are actually benefiting from defending the Naira. It is only benefiting the rich. Why not use the reserve to develop infrastructure in the whole of the country, create employment and provide security. Foreign investors will come when the country is experiencing peace and prosperity