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.
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.