Something uncomfortable is happening at the CBN. The CBN governor is doing literally everything to defend the currency, and this is not a good thing.
In what is seen as a me-against-the-world battle, the governor has been gradually losing the trust and confidence of his colleagues both at the Monetary Policy Committee, and the top brass of the Nigerian Banking community, with a few bank CEOs and committee members openly voicing their dissatisfaction at the way the currency is managed.
Analysts have been at a loss as to the rationale behind the value of the Naira in the light of lower oil prices and the CBN’s currency controls, which aren’t working, despite the CBN’s claims to the contrary.
Emefiele says that the demand management strategy of the bank has managed to stabilize the forex market and buffered the foreign reserves, which has shown some accretion recently.
Myth vs Reality
But according to sources deep within the banking system, the perceived foreign exchange stability is a complete myth.
The CBN’s effort at forex management is described as cosmetic, only concealing much deeper problems. One of such problems is that the forex market has been essentially shut down in order to achieve what is being perceived as orderliness and stability within the market.
A bigger problem is that businesses are going through untold hardship, and an even bigger problem is that the economy could plunge deeper towards recession.
Well-placed sources within the system say that there has been a build-up of backlog of unpaid foreign trade settlements and remittances that is conservatively estimated at $3 billion. Other estimates put the backlog of unsettled transactions at $5 billion. Despite banning 41 items from the official forex market, demand is still not being met.
Mounting opposition
The Nigerian banking community is showing opposition to the CBN’s forex management regime. And this has gone on public record.
Segun Agbaje, chief executive officer of GTB, Nigeria’s biggest bank by market value, said in August that the exchange rate is unsustainable, and will need to be devalued by 10 percent for the Naira to settle.
In June, First Bank’s CEO Bisi Onasanya said, “People just don’t believe the central bank has what it takes to sustain the exchange rate at the present level”.
“The market needs to reopen. You cannot peg the naira at a level that is unrealistic”.
“We need to bite the bullet and move on, or there will be repercussions over the longterm”, he said.
See no evil speak no evil
One fact, that is not on record however, is the length to which the governor is going, to make sure his opponents within the community are whipped back into line.
According to sources, he has threatened to “deal with” banks that openly “criticize” the CBN. As for the opposing MPC members, he has “threatened” to halt the publishing of personal statements in the MPC communique, usually released at the end of committee meetings. It is unclear if some of these alleged threats are the reasons why most bank CEOs have been muted of late especially after the monetary policy committee meeting. The Governor being an ex banker himself and more than anyone else probably has enough dirt on his former colleagues to hit them where it hurts.
The CBN governor remains adamant the Naira is “appropriately priced”.
In the Financial Times Africa Summit that commenced on Monday, the governor defiantly defended his currency controls. But in the same summit, the head of Ecobank pointed to the fact that just about 20 percent of the economy was supported by the fixed FX rate. This contradicts the governor’s noble intentions of wanting to shield the economy from spikes in forex costs.
In what is considered as deeply puzzling, the CBN governor said in the summit that the currency controls would eventually be taken off if demand for forex falls, making it seem that a slowdown in economic activities is a desired objective.
The naira is neither over-valued or under-value,it depends on how you see the naira and who saw the naira.if you look at the naira with the size and infulences/power/population of Nigeria.you see that the naira is under-valued,because.if you borrows one Issac Newton, laws of motion ( that if an object with bigger mass,if it’s in motion,it affects other objects in smaller mass) so if the naira is strong,stable and flexible.it will affect it’s African neighbor countries economy.if not affects more than half of African countries,if there is a political will which will lead to monetary/financial strategy(I saw the extracted interview the Gov. of C.B.N saying,that the domestication of Nigeria forex in Nigerian economy will lead to the dollarization of Nigeria economy,and Nigerian banks do not want foreign currencies in their vault, let the majority of nigerians decides on that not the Gov).all that is needed if you pushes the Nigerian economy,the naira will find it’s proper level,the naira will behave like a river erodes,or the c.b.n controls the naira the way it wants.
An initial analysis of why the naira is falling since this year against the dollar,means that,there was an injecting of foreign money into Nigeria economy,and there was a withdrawing of money since this year.that is why is being depreciating,the c.b.n could have replaces it, into the Nigeria economy,either with naira or dollar,without making a dipping into a small foreign reserve,by being creative,secondly the Nigerian economy solely depending on oil for it’s foreign currency need makes Nigeria unable to absorbes this shock,the dollar by and large is over-valued because it’s consistency deficit annual budget,deficit balance of trade,the japans and china holds more than 1trillion worth of u.s treasury bond eachly,soif any country that buys u.s based dollar bonds supports the dollar artificially.i.e subsidizes the dollar.
Thirdly Nigeria economy is not broadly based,the is work to be done,and the naira have been weaken dues to babangida’s structural adjustment,naira have never recovered from it