As CBN becomes Bureau De Change

And now we have to capitulate to the economists. They have won. Rather than a fixed exchange rate, the naira is being thrown to market forces, which will determine its ‘true’ value. Already it is being reported that consistently for a number of days, at the parallel market, the naira stood at 350 to the dollar. As we capitulate, we know that this is not the true value of the naira but a forced value, forced by low foreign exchange earnings, insider trading and round tripping and a panicky greedy elite, which obsessively stockpiles the dollar.

I still sincerely believe that the naira is undervalued. Take a hair cut for instance. Where in the United States could you get a haircut for one dollar? Haircuts are done for twenty dollars whereas you could get your hair cut for two hundred naira, which is the equivalent of the official rate. Or where could you get a meal at one dollar? Yet you could get mama put at N200 or less. Where could you have a taxi drop at two dollars? Yet you could have a drop at N300. The purchasing power parity of the naira versus the dollar clearly shows that the naira is undervalued.

For a while, it made sense to peg the exchange rate. Central Bank of Nigeria did all within its power to save the naira. All the measures it took would have been successful in some other country, but there is a factor exclusive to us as a people, the Nigerian factor, which would frustrate the best ideas of the common good and poison them with egotistic desires. The fixed exchange was becoming too lucrative for those with official access to forex; civil servants on foreign trips, government officials on overseas medical treatment, influential citizens with children schooling abroad; bankers also had a field day as it was reported that behind the counter, they negotiated with importers who needed forex, made them sign off on the official rate, and collected the difference under the counter. Ultimately, the nation was losing while a few individuals were getting rich. The wide gulf between the official and parallel market rates made it such that only a saint already living in heaven would not be tempted to devise means of taking advantage of the system. Therefore, as the Monetary Policy Committee has decided to adopt a flexible exchange rate policy, it is perhaps better, not because the market rate is the real value of the naira but to eliminate the temptation and the corruption.

If government is going to retain a fixed exchange rate for critical sectors of the economy, it needs to be predetermined what those sectors are. How are we sure that we wouldn’t recede to the Abacha days where whatever the Head of State needed at the time became critical, such that while others got forex at the higher official rate, favoured cronies were using fewer naira to buy forex, selling it off at the higher official rate and using the excess naira to buy more forex, in an endless opportunity cycle?

What guarantee do we have that in a government, which has made anticorruption its main agenda of governance, there wouldn’t be a repeat of such abuse of access? Even with the outgoing wide gulf between the official rate and the parallel market rate, there was an accusation leveled against a presidential aide of having made hundreds of millions of naira from the parallel market. Perhaps, to eliminate this hypocrisy, this double standard, the flexible exchange rate is welcome.

But the new policy must be something that really benefits Nigerians. In my understanding, formerly individuals in the CBN and the deposit money banks yanked off the profits; now government, through the CBN is going to be a mega bureau de change.

It means that rather than give the hard earned dollars away to bank officials and their collaborators at ridiculous rates for them to devise means of smiling to their soak-aways (no more smiling to the bank since they now hide the money in soak-away pits), the CBN would sell forex to banks a little below the prevailing market rate. In practical terms, in April CBN sold 669 million dollars to deposit money banks.

Assuming it sold this at 198 naira to the dollar, it made only one naira atop the 197 window, and if the banks were to be faithful to sell this at 200 naira per dollar, would collectively make one billion three hundred and thirty eight million naira. But Nigerian bank officials are not that stupid and would find ways of making at least additional fifty naira out of every dollar.

Or even if they were stupid enough, those who got these monies wouldn’t be; they would find ways to perform miracles with it. So now my understanding of a flexible exchange rate would be that, taking the figure of April, from 669 million dollars, instead of making a paltry 669 million naira selling to banks, the CBN would make something like N200,700,000,000, if it sold the dollar at 300 naira each.

Perhaps this is a true manifestation of the truism that every disappointment is a blessing. Government should see forex trading as a business with huge profits and make as much money as it could from the business. The other worry would be putting the money into good use. Though I have not made a study of it, but it seems that when special agencies are established, they accelerate infrastructural development faster. Petroleum Trust Fund (PTF) did far more than the government was doing; at least it did the road to my village in addition to water-works. Contractors had more confidence in SURE-P because payment for work was guaranteed. Perhaps whatever CBN makes from this flexible exchange business should be put into a Special Infrastructure Fund and a board created to manage it. A special focus could be developing access infrastructure to tourism sites.

How is the road to Mambilla Plateau or Yakari Game Reserve? Why can’t there be a fast train to Obudu Cattle Ranch? How can we mouth about diversifying the economy and not be strategic in providing access infrastructure? Leaving the money, as part of ministries would just be business as usual, and before long, the civil servants would show politicians the ways and means of siphoning all the money with nothing to show except poor roads and fifth rate imports from China. If we are not careful, while Buhari is fighting corrupt past politicians, the corruption right under his nose would be the mother of all corruptions. Let this government tell Nigerians what it would do differently with this flexible exchange bonanza.

• Fr. Evaristus works at the Catholic Secretariat of Nigeria.