The Senate summons the governor of the Central Bank of Nigeria as the naira breaches the N700 mark.
Speculation pushing the currency to the super highway, says Fasua
• ‘It will fall to as low as Nigerians wish’
• I have only buying rate because there is dollar to sell, dealer laments
• Olujimi: We are bleeding and bleeding badly
Exactly a year after the Central Bank of Nigeria (CBN) ceased weekly financing of bureaux de change (BDC) operators, the foreign currency (FX) crisis intensified, with the dollar approaching the N700/$ threshold yesterday.
The recent degree of panic may have sparked new speculative behaviors, which appear to be dragging the market into a self-fulfilling loop.
Yesterday afternoon, several online media stated that the naira had plummeted to N710/$, with the tales going viral, but investigations indicate that the reports were primarily hypothetical, since no trader confirmed that the local currency had gone that low.
According to The Guardian, dollars used by candidates during recent party primaries were warehoused by party officials, delegates, and other recipients of the earnings, who were stockpiling them for bargain hunting.
The most recent inquiry indicated that a significant portion of the revenues, some of which came from the parallel market, had yet to be given to the market. Furthermore, there is excessive pressure on the dollar due to the payment of international school fees and summer trip plans.
The greenback was worth N670/$ as of yesterday morning. However, prior to the viral web story, several dealers in Abuja and Lagos were purchasing around N680 to N703 per dollar.
With its current black market trading position, the naira has lost around 34% of its value to the dollar at the window, which many believe to be the most accurate representation of the naira’s genuine rate.
It is the first time the shaky naira has fallen to that level. Some dealers predicted that the native currency will soon break over the N700 resistance level and reach N1,000/$.
The Senate agreed Monday to summon CBN Governor Godwin Emefiele in response to the naira’s recent wild plunge. Emefiele was summoned to the Senate plenary and requested to address the legislators behind closed doors.
The parliamentarians, on the other hand, did not set a date for the governor to appear. On Wednesday, lawmakers also agreed to a two-month break that would conclude on September 20.
The decision to call the CBN governor followed consideration on a move by Ekiti Senator Olubunmi Adetumbi.
On Tuesday’s official market, the Naira sank sharply versus the US dollar. It started at N427.30 and ended at N431.00 to the dollar. The parallel market exchange rate was up to N670 per dollar, and as of Wednesday morning, it was set at N710 per dollar, however, it momentarily dipped to around N670 per dollar by evening.
In his presentation, Adetumbi remembered how the CBN had previously imposed an indefinite hold on forex transactions to BDC operators owing to fraudulent conduct, causing the exchange rate to soar. He expressed worry that the import-export window intended to service the FX requirements of corporate titans has become a rare chance that only a select few can take advantage of.
“The two instruments of Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) could only service around 20% of overall FX demand by travelers and enterprises,” he added.
He urged the CBN to implement a fresh mechanism to alleviate present scarcity and fix the declining exchange rate. Another Ekiti senator, Biodun Olujimi, who supported the motion, stated that there was a need to punish someone for failure and the wild collapse of the naira, “and that is the CBN.” She was perplexed as to why BDCs were being shut down and barred from selling.
Olujimi also expressed concern over airline closures and the soaring price of Jet-A1 fuel. “What is happening to the dollar mirrors what is occurring in Nigeria.” We’re bleeding, and we’re bleeding horribly.”
Following that, the Senate asked the CBN to intervene immediately to halt the naira’s fast depreciation against the dollar and other international currencies.
It also directed its Committee on Banking, Insurance, and Other Financial Institutions to conduct a review of the CBN Intervention Funds and the naira’s decrease in value in order to provide long-term remedies.
NAIRA was trading at roughly N580 per dollar around this time last year before the CBN went after the BDC operators for suspected anti-market actions and terrorist financing.
“Nigeria is the sole country providing foreign exchange to BDCs, but we have continued to do so due to pressure and demands to ensure that those who operate in this market may do so because we see it as a chance to develop business for them.”
“We feel that as long as they do this for the good of the economy, they are acting in the best interests of the country, but we have grown quite disillusioned and worried about the actions of the BDCs in Nigeria.” We are dissatisfied that, rather than selling $5,000 to tourists, they have converted themselves into agents that assist bribery and corruption in Nigeria, which we feel cannot be accepted.
“The CBN has also been inundated with complaints regarding the mode of operation of BDCs, and it has become so shameful that we believe that at this time we need to take a decision,” CBN Governor Godwin Emefiele stated.
Two weeks following the ruling, the market flew into a frenzy, with banks charged with handling business/personal travel allowance (B/PTA) apparently joining the maelstrom of speculation.
However, rate volatility is only one aspect of the unfolding issue. As demand continues to rise, most dealers have ran out of stock. A dealer in Lagos revealed that he had been looking for dollars for two days after receiving a N20 million deposit from a customer.
“Since Monday, a client has deposited N20 million into my oga’s account.” We haven’t been able to spend a single money while I chat with you. The rate isn’t really an issue; people would purchase at any price, but there isn’t any supply, which is why we don’t even have a selling rate today. If there is a seller, I am happy to purchase at any cost the client is comfortable with, but there is no use in giving you a selling rate because I don’t have to sell,” Musa Abdul informed our correspondent.
With the Investors’ and Exporters’ (I&E) window failing to fulfill increased FX demand, more people and firms are turning to the black market to meet their demands. This has intensified the segment’s pressure, resulting in high volatility, which peaked during the recent political primaries.
During the drills, political aides moved from one market cluster to the next, scouring the country for accessible foreign currency. Following it, some analysts predicted that the market would be oversupplied. However, the situation has deteriorated in recent weeks, as though speculators had established positions against the local currency.
There are concerns that the situation may deteriorate in the coming weeks due to an increase in demand from summer vacationers and tuition payments.
However, Dr. Tope Fasua, Chief Executive of Global Analytics Consulting Limited, said that speculation and perception management are the most overpowering aspects threatening the naira’s stability. According to him, the two issues are now driving the current to “superhighway” status, with the naira projected to tumble to as low as Nigerians desire.
“If someone says I just purchased a dollar for N800 today, you will see that the rates are headed in that direction,” said Fasua, who has warned of an uncontrolled spiral if the top bank refrains from intervening. We are the ones who are destroying our money. We must exercise caution when it comes to perception management. The CBN must occasionally conduct a favorable evaluation of the currency.”
The CBN has consistently disregarded the black market rate as non-existent, stating that using it as the naira’s reference price is misleading and incorrect.
Fasua further said that the parallel market accounts for just around 25% of the market but is driven by corruption in the other 75%. The economist stated that the parallel market’s appeal is being fueled by I&E inefficiencies.
Another analyst, David Adonri, Vice President of Highcap Securities Limited, told The Guardian that the local currency’s decline indicates the economy’s bad performance. He cautioned that the following months might be more frightening since the administration does not want to take a risk.
The Federal Government collected N1.63 trillion in income between January and April but spent N1.94 trillion on debt servicing alone. Another N1.26 trillion was spent on personnel, while just N773 billion was spent on capital projects.
This year, up to N4 trillion will be spent on premium motor spirit (PMS) subsidy payments, with an additional N6.7 trillion estimated for next year if the government fails to obtain vital backing to end the social initiative.
Adonri blamed the naira’s fall on these and other economic disincentives in the system, questioning how anybody expects the currency to stabilize while import pressure continues to increase and robbers take over farmlands.
BDCs have made urgent efforts to return to mainstream FX distribution through the Association of Bureau de Change of Nigeria (ABCON). They eventually requested the CBN to establish an autonomous trading window for BDCs (BAFEX). They also discussed incorporating them into the remittance administration to improve its efficiency.
However, during a recent World Bank/International Monetary Fund (IMF) conference, Emefiele stated that the economy would be unable to deal with a completely liberalised FX market due to the significant imbalance between FX demand and supply.
The IMF warned on Tuesday that increasing interest rates in rich countries will continue to cause capital flight from developing markets, leaving the economies in the grip of an exchange rate crisis.
The warning came only one day before the Federal Reserve System raised interest rates by 0.75 percent for the second time in two months in an effort to slow inflation. According to experts, rising interest rates will continue to deprive hazardous areas of the money needed to stabilize their external reserves.
The country’s overseas reserves have declined in recent years and now stand at roughly $39 billion. The Guardian has learned that speculators may be shorting the naira as the downturn continues, hoping that Nigeria lacks the necessary drive to keep it from falling further.