Senate summons CBN governor as naira breaks N700 ceiling
A man exchanges Nigeria’s currency Naira for US dollars in Lagos. (Photo by PIUS UTOMI EKPEI / AFP)
• Speculation pushing currency to 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) stopped the weekly funding of the bureaux de change (BDC) operators, crisis in the foreign exchange (FX) has worsened, with the dollar nearing the N700/$ ceiling, yesterday.
The level of panic witnessed in the past two weeks may have triggered fresh speculative behaviours that seem to be pulling the market into a self-fulfilling cycle.
Some online media reported, yesterday afternoon, that the naira had fallen to N710/$, with the stories going viral, but findings suggest that the reports were largely speculative, as no dealer confirmed that the local currency had slipped that low.
The Guardian had reported that dollars used by politicians during recent party primaries had been warehoused by the party leaders, delegates and other beneficiaries of the proceeds, hoarding them for bargain hunting.
The latest investigation confirmed that much of the proceeds, part of which came from the parallel market, have yet been supplied to the market. Also, there is undue pressure on the dollar search due to the payment of school fees abroad and summer travel plans.
As of yesterday morning, the greenback was exchanging for N670/$. But some dealers in Abuja and Lagos were buying at between N680 and N703 to a dollar before the viral online report surfaced.
With its current black market trading position, the naira has lost about 34 per cent of its value to the dollar at the window, which many consider the closest to the real rate of the naira.
It is the first time the troubled naira would plunge that low. Some of the dealers warned that the domestic currency could be heading to N1,000/$, having broken the N700 resistant point.
The Senate, yesterday, resolved to invite the CBN Governor, Godwin Emefiele, over the free fall of the naira in recent weeks. Emefiele was asked to appear before the Senate in plenary and address the lawmakers behind closed doors.
The lawmakers, however, did not fix a date for the governor to appear. On Wednesday, the lawmakers also resolved to embark on a two-month recess that will end on September 20.
The resolution to invite the CBN chief was sequel to the deliberation on a motion by the Ekiti senator, Olubunmi Adetumbi.
The Naira fell significantly against the U.S. dollar at the official market on Tuesday. It opened at N427.30 and closed at N431.00 to a dollar. At the parallel market, the exchange rate was up to N670 a dollar and as of Wednesday morning, it was pegged at N710 to a dollar, although it fell briefly to about N670 to a dollar by evening.
In his presentation, Adetumbi recalled how the CBN earlier placed an indefinite halt on forex sales to BDC operators due to fraudulent acts, a move, he said, triggered the spike of the exchange rate. He expressed concern that the import-export window meant to serve the forex needs of business giants has become a rare opportunity that only a privileged few can access.
“The two instruments of Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) could only serve less than 20 per cent of the total forex demand by travellers and businesses,” he said.
He called on the CBN to take a new measure to curb the current scarcity and address the sliding exchange. Contributing to the motion, another Ekiti senator, Biodun Olujimi, said there was need to penalise somebody for failure and the free fall of the naira “and that is the CBN.” She wondered why BDCs were shut down and prevented from selling.
Olujimi also lamented how airlines are shutting down and the price of Jet-A1 fuel skyrocketing. “What is happening to the dollar is a replica of what is happening to Nigeria. We are bleeding and bleeding badly.”
The Senate, thereafter, urged the CBN to urgently intervene to stop the rapid decline in the value of the naira in relation to the dollar and other international currencies.
It also mandated its Committee on Banking, Insurance and other Financial Institutions to conduct an assessment of the CBN Intervention Funds and the decline in the value of the naira to come up with sustainable solutions.
NAIRA traded around N580 to a dollar exactly this time last year before the CBN went after the BDC operators for alleged anti-market activities and terrorism funding.
“Nigeria remains one and the only country selling foreign exchange to BDCs but because of pressure and requests, we have continued to do this to see that those who operate in this market can do so because we see it as an opportunity to create business for them.
“We believe that as long as they do this, they do it to the benefit of the economy, but we have become very disappointed and concerned about the activities of the BDCs in Nigeria. We are unhappy that rather than sell about $5,000 to travellers, they have turned themselves into agents that facilitate graft and corruption in Nigeria and we believe that this cannot be tolerated.
“The CBN has also been awash with complaints about the modus operandi of BDCs and it is becoming so disgraceful that we feel that at this stage we need to take a decision,” the CBN Governor, Godwin Emefiele, had said.
Two weeks after the decision, the market went into a panic mode with banks that were given the responsibility to handle business/personal travel allowance (B/PTA) allegedly joining the fray of speculation.
BUT rate volatility is just part of the evolving crisis. Most of the dealers have run out of supply as demand continues to balloon. A trader in Lagos disclosed that he had been hunting for dollars with an N20 million deposit by a customer for two days.
“A customer paid N20 million into my oga’s account since Monday. As I speak with you, we have not been able to buy a single dollar. The rate is not even the issue; the customers will be willing to buy at any rate, but there is no supply, which is the reason we don’t even have a selling rate today. I am willing to buy at any rate the customer is comfortable with if there is a seller, but there is no point giving you a selling rate since I don’t have to sell,” Musa Abdul told our correspondent.
With the Investors’ and Exporters’ (I&E) window unable to meet the rising demand of FX users, more individuals and businesses resort to the black market to source for FX to meet their needs. This has increased the pressure on the segment, leading to extreme volatility that peaked during the recent political primaries.
During the exercises, aides to politicians went from one market cluster to another, combing the country for available FX. Some analysts said the market would be saturated with supply, thereafter. But weeks after, the situation is getting worse, as if speculators have taken position against the local currency.
There are fears the situation could worsen in coming weeks following an increase in demand by summer holidaymakers and tuition payments.
But an economist and Chief Executive of Global Analytics Consulting Limited, Dr. Tope Fasua, argued that speculation and perception management are the most overwhelming factors confronting the stability of the naira. The twin challenges, he said, are currently pushing the current to “a super highway” with naira expected to fall to as low as Nigerians wish it.
Fasua, who has warned of an uncontrollable spiral if the apex bank hands off intervention, said: “If anybody says I just bought a dollar for N800 today, you will see that the rates are going in that direction. We are the ones killing our currency. We need to be careful about perception management. Sometimes, the CBN needs to do a positive review about the currency.”
The CBN has always dismissed the black market rate as non-existent, arguing that it is misleading and wrong to use it as the reference price of the naira.
Fasua also argued that the parallel market is only about 25 per cent of the market but is fueled by corruption activities in the official 75 per cent of the market. The economist admitted that the inefficiency of I&E is also fueling the popularity of the parallel market.
Another economist and Vice President of Highcap Securities Limited, David Adonri told The Guardian that the slump of the local currency reflects the poor performance of the economy. He warned that the coming months could be scarier as the government does not want to bite the bullet.
From January and April, the Federal Government earned N1.63 trillion in revenue, but spent N1.94 trillion on debt servicing alone. Another N1.26 trillion went into personnel costs while a meager N773 billion was invested in capital projects.
As much as N4 trillion will be spent on premium motor spirit (PMS) subsidy payments this year and another N6.7 trillion is being proposed for next year if government fails to secure critical support to remove the social scheme.
Adonri said these and many other economic disincentives in the system are responsible for the crash of naira, wondering how anybody expects the currency to achieve stability when import pressure continues to rise with bandits taking over the farmlands.
BDCs, acting through the Association of Bureau de Change of Nigeria (ABCON), have made frantic efforts to return to mainstream FX disbursement. At some point, they urged the CBN to create BDCs’ autonomous trading window (BAFEX). They also canvassed their integration into the remittance administration to increase its efficiency.
But at a recent World Bank/International Monetary Fund (IMF) meeting, Emefiele said the economy, with the huge gap between FX demand and supply, would not cope with a fully liberalised FX market.
On Tuesday, the IMF warned again that rising interest rates in developed countries would continue to trigger capital flight from emerging markets, leaving the economies grappling with an exchange rate crisis.
The warning came a day before the Federal Reserve System increased the interest rate by 0.75 per cent for the second time in two months to stem the inflation rate. Experts said the rising rates would continue to starve regions considered as risky of the funds required to stabilise their external reserves.
The country’s external reserves have dwindled in the past years and currently floats around $39 billion. The Guardian learnt that speculators could be shorting the naira as the slump continues with the hope that Nigeria lacks the sufficient force to prevent it from slipping further.
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