The Central Bank of Nigeria (CBN) yesterday linked the heavy demand for the United States dollars (USD) in the domestic economy to the activities of politicians who are rapidly dollarizing the economy.
The apex bank is also fast-tracking plans to adopt new regulations to fight money laundering in the bureaux des change (BDC) segment of the financial services sector of the economy.
The naira has come under intense pressure in recent times following high demand for dollars, which the CBN noted was being used in the importation of goods.
CBN governor Malam Sanusi Lamido Sanusi, who briefed journalists on the outcome of the 234th Monetary Policy Committee meeting, yesterday in Abuja, said the committee noted the strong foreign exchange demand pressures coming in the domestic economy were not linked to an increase in the importation of goods.
"This non-import related demand was attributed to the build-up in political activities in the country and increasing resort to dollarization of the economy by the political class," he said.
Sanusi frowned at the high value of dollars purchased by BDCs, which they could not give account of, fearing that they may have become conduits for money laundering activities. "We think there is something absolutely wrong with BDCs buying hundreds of millions of dollars and not being able to account for them. We think that these moneys are not being used for importation of goods and services; we think they are a part of a money laundering exercise and we would have to deal with it."
He said that the policies around massive withdrawals and deposits of cash should now move from naira to dollars in order to stop the situation where Nigeria has become the highest importer of US currency in the world.
"In the next few weeks, you will see a new set of policies from us. I know there would be a lot of resistance from outside but, again, what's new?" he said.
Sanusi disclosed the discovery of massive fraud in Consolidated Discount House, which he said was currently being investigated.
"In Consolidated Discount House, there appears to be a massive case of fraud and misrepresentation of accounts. We have taken action: we have examiners in there trying to determine the extent of the fraud. We will pay all the non-insured depositors in the course of this week; no non-bank depositor is going to lose any money in consolidated discount house. We will come out with appropriate statements in the future."
Meanwhile, 11 members of the MPC voted for the CBN to keep rates unchanged, while only one person voted against.
With that decision, CBN has kept benchmark rate at 12 per cent for the 12th consecutive time; Cash Reserve Requirement on public sector deposits was also retained at 50 per cent while that of private sector deposits remained at 12 per cent.
The CBN governor said the apex bank is still committed to the stability of the naira, adding that the CBN needs to check the amount of dollar flows to BDCs, which activities, according to the apex bank, put pressure on the naira.
"The next few months will not be as difficult as the past months in terms of exchange rate. We are committed to stability of the naira exchange rate," Sanusi said.
He said the committee noted with satisfaction the positive developments in the economy, especially the moderation in inflation, stability in the financial system and currency markets. It also noted the strong growth forecast by the National Bureau of Statistics for third and fourth quarters on the back of relatively slow growth in the second quarter.
"It observed that the actions taken by the bank since the last MPC yielded their intended effect on stabilising the exchange rate while maintaining inflation within its target range... the fundamentals in the economy which necessitated the July MPC measures had not changed substantially, except that the US Federal Reserve had provided clearer insight into the tapering off of its asset purchase programme - Quantitative Easing3."
According to him, the naira exchange rate remained one of the most stable compared to more than 30 countries surveyed, having depreciated by only 2.3 per cent from year to date compared with the massive depreciation in the value of other currencies such as the Indian Rupee, the Indonesian Rupiah, the Brazilian Real, the South African Rand and the Ghanaian Cedi.
He said that clarifications provided by the Fed over its QE3 policy brought substantial relief to the financial markets globally and initiated a reversal of the trend in capital outflows from the country. The committee considered the developments in money market rates which rose astronomically to peak at 40.0 per cent on September 18, 2013. However, these developments were temporary, arising from the postponement/stalemate in sharing the monthly Federation Account Allocation Committee revenues.
Banks which participated in the wDAS widow expressed a preference for paying high interbank rate for one day rather than their borrowing from the CBN at 14.0 per cent and being barred from the wDAS window.
The Committee noted the continued dependence of the banking sector on monetised oil revenues for its liquidity and stressed the need to keep pushing banks into altering their business model to reduce vulnerability.
On the global scene, he said the economy continued on the slow path to recovery with financial systems responding swiftly to new and expected risks. The risks include the possibility of the US FED tapering off its accommodative monetary policy stance (QE) and higher long-term interest rates as the economy enters the recovery mode. This move which has been temporarily postponed portends uncertainties in external conditions for emerging markets and developing economies, including Nigeria.