Gabriel Omoh, Business Editor
15 December 2008
THE Naira which has been stable for some times now has returned to the days of foreign exchange uncertainty as it continued its round of depreciation occassioned by the CBN whose primary function, among others, is exchange rate stability.
The Central Bank allowed the naira, broadly stable for months, to depreciate against the dollar at its bi-weekly auction on Wednesday December 4, selling at between N127 and 129 compared to around N117 the week before.
It sold only $180 million on that Wednesday and $100 million the previous Monday despite demand of about $2 billion, leaving banks to scramble for dollars from other sources.
The depreciation represents a 10 per cent loss in value for the local currency meaning that the naira was devalued by the CBN from N116 to N127 to the dollar.
In the early hours of Wednesday December 10, after the Sallah holidays, the dollar was trading at the open market for N128 but in the afternoon when the CBN announced the result of its auction of N132.5, it signalled another round of depreciation as the naira sold at premium in the open market for N140 to the dollar and N210 to one British Pound.
What the CBN seems to have done is the re-introduction of round tripping and sharp practices at the foreign exchange market.
The Central Bank had promised the nation that it was willing to meet all demand for dollars at a market-determined rate.
The regulator sold about $1.270 billion to banks when it started its intervention to support the naira, but pent-up demand remained strong and could not make any positive impact on the exchange rate. The inter-bank market has effectively been frozen since the dollar supply all but dried up as the Central Bank tried to push through a managed devaluation of the naira.
Indeed, it would appear that the CBN has not told the nation the truth that what is happening to the naira is pre-planned by government to raise more naira in the face of falling oil prices and volume of production decline to finance the 2009 budget.
The CBN Governor, an economist, knows too well that devaluation does not benefit a country like Nigeria which depends on oil which price and volume sold in the market place is externally determined.
The CBN's action on the naira is harmful to the economy.
Already, the Nigerian economy is facing financial haemorrhage as Nigerians and corporate bodies are moving funds massively out of the country as well as from naira to dollar to beat the uncertainty that a fluctuating exchange rate brings in its trail. CBN's foreign payment schedule in the last eight weeks show that a total of $13.894 billion went out of the country while home remittances from Nigerians in diaspora has dried up.
While about $757 million went out in the week ending 9th September, the amount of foreign exchange flowing out of the country rose to $1.359 billion in the week ending 19th September. It, however, dropped to $452 million on the 3rd of October and moved astronomically to $3.290 billion on 17th October.
The foreign exchange outflow went further up to $3.356 billion on the 31st of October and decline a little to $2.397 billion on the 14th of November and $2.02 billion and $1.262 billion for the weeks ending 21st of November and 28th, respectively. Home remittances which has been on the high side has dried up from the CBN's record.
The trend became noticeable in October where several billions of dollars were purchased through the banks and bureaux de change in a matter of weeks.
The movement of funds started when the President was said to have told the Council of State meeting that the government will crack the naira to generate more naira revenue to fund the 2009 budget. Governors were said to be those who started off the dollar purchase which the CBN wrongly attributed to speculators.
According to data obtained from the CBN, in a matter of weeks, the total amount of foreign exchange that went out through travels amounted to $72.067 million, debt service/payment $799.194 million, wholesale at the Dutch Auction market $6.276 billion, direct remittance $851.809 million, letters of credit $3.205 billion and cash sales to banks and bureau de change $3.170 billion.
Despite the said intervention, Nigeria's interbank foreign exchange market remained frozen and is now to be replaced by daily auction when all dollars seems to have dried up amid unprecedented demand.
The CBN Governor in an admission to naira crash problem said after the Monetary Policy Committee on Friday that, "sustained stability that has characterised the foreign exchange market in the last 24 months appeared to have come under threat since November 2008, largely due to the global economic and financial developments.
The demand for foreign exchange at the WDAS has risen sharply since October as private inflows have shrunk and oil prices softened at the international market.
"In the light of the above, the Monetary Policy Committee decided as follows to leave the Monetary Policy Rate (MPR) unchanged at 9.75 per cent; reduce banks' foreign exchange net open position from 20.0 to 10.0 per cent of shareholders' funds with effect from Monday December 15, 2008; and CBN is to participate actively in the daily inter-bank foreign exchange market by buying and selling through the two-way quotes."
A statement issued by the committee said, "in conclusion, the committee noted the anxiety of participants in the foreign exchange market and will like to assure the public that the CBN remains committed to a stable exchange rate regime and will continue to meet demand for foreign exchange at market determined rates."
It is sad that the CBN Governor, who once said that the global financial meltdown will have no effect on the economy and who attributed the depreciation of the naira to activities of speculators is admitting that global economic and financial development is responsible for the crash of the naira.
The governor should realise that the worse thing to do these days with the global economic crisis is to create panic situation in the domestic market that caused huge capital flight from the economy. This move has created a negative impression in the minds of Nigerians and foreign investors that the Federal Government does not have the capacity to finance the foreign exchange market, a signal of financial instability that is dangerous for an economy that is playing catch up policy.
The CBN should return the naira to a stable and predictable level and stop playing games with the economy and the lives of Nigerians.
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