May 26, (THEWILL)- The Central Bank of Nigeria (CBN) and the Economic and Financial Crimes Commission (EFCC) have stepped up their fight against the perceived ‘enemies’ of the naira who are seemingly responsible for the continued depreciation of the domestic currency. Since he assumed duties on September 9, 2023, Dr Olayemi Cardoso, the CBN governor, and his team at the apex bank have been firing from all cylinders to have the stable (not really strong) naira by fiat.
Among the flurry of policy measures was a directive to the banks to sell off excess dollar reserves in their system through a new Net Open Position (NOP) limit arrangement and a ban on the use of foreign currency denominated collaterals for naira loans.
The CBN equally announced the removal of the ±2.5 percent cap spread it had previously placed on interbank foreign exchange transactions. During the period, the regulator further directed the banks “to borrow and lend in the same currency (natural hedging) to avoid currency mismatch associated with foreign risk.” The CBN also banned the usd of foreign currencies as collateral for naira loans.
In the process, the apex bank found the cryptocurrency platform blameworthy for the worsening depreciation of the naira. It subsequently directed all banks to close the accounts of persons engaging in cryptocurrency trading. The government thereafter went beyond that.
In February, 2024, two of Binance’s top executives – Nadeem Anjarwalla, regional manager for Africa; and Tigran Gambaryan head of financial crime compliance, who arrived the country on a business trip were detained by Nigerian authorities for weeks as part of the wider clampdown on cryptocurrency trading. One of them is being prosecuted while his colleague escaped from custody.
While the CBN tackles from the muddling aggressive policy angle, the EFCC moves to the field as the policeman of the naira. Its operatives are ransacking business centres and combing every corner in major cities to arrest speculators and those causing the naira to fluctuate between the ranking points of the “best performing and the worst performing” global currency.
Since the year, the anti-graft agency has been combing business centres and premises of the Bureau De Change (BDC) operators to clamp down on suspected speculators and those involved in ‘kill the naira’ game.
Recently, operatives of the EFCC expanded its clampdown on BDC operators, arresting traders in Abuja, Lagos, Kano and Port Harcourt. This came as the naira weakened further against the United States dollar at both the official and parallel foreign exchange markets about Mid-May.
The BDC operators who have always been the major victim suffered a new onslaught recently. In its latest radical outing, the CBN revoked the operating licences of 4,173 BDC operators which it later accused of engaging in unethical practices.
Earlier, the CBN had resumed sale of forex to the BDCs with strict directive on how to sell to their customers thereby violating its “willing buyer willing seller” policy.This time, the BDCs are to recapitalise with N2 billion and N500 million depending on the category (national or state). They are also to re-apply for operating licences (N2 million and N250,000) under a very stringent condition that will lead to the extinction of a huge portion of the sector.
The approved guidelines also state that for operations of BDCs, all transactions by residents must only commence, “after electronic retrieval of the potential customer’s BVN or Tax Identification Number (TIN) from the NIBSS or FIRS databases, respectively, and the details confirmed to match with the potential customer’s standard identification document.”
Another highlight of the approved guidelines with regard to operations of BDCs is that: “All transactions by non-residents shall only commence after obtaining a copy of the potential customer’s passport identification document and validation with the relevant Nigerian agency.”
For foreign currency cash purchases, the guidelines state that: “Sellers of USD10,000 and above shall be required to declare the source of the foreign exchange (and) for all customer-present transactions, all the naira proceeds shall be electronically credited or transferred to the same customer’s naira account or prepaid card.”
While the CBN is commended for its efforts to address infractions in the forex market, given our environment, economic and financial experts believe that it is not unlikely that these policy actions will lead to abuse, corruption and unilateral seizure of people’s genuine assets thereby worsening the naira depreciation as forex becomes scarcer. By now, it would have been clear to the monetary policy authorities that forex is earned. You produce, export to earn forex. When it is not there, no amount of policing would provide the liquidity. The fiscal policy side is still mired in waste, corruption and accumulation of debts.
In April, the CBN gave kudos to itself for what it called the positive outcome of its “bold” monetary policy measures and aggressive actions to wedge the weakening stance of the naira. This was based on the rebounding of the naira in mid-April when it exchanged N1,100/$1 in the official window.
Curiously, the ‘strengthening’ of the naira coincided with the dwindling of Nigeria’s external reserves. Findings showed that as of April 17, 2024, Nigeria’s foreign exchange reserves had lost a total of $2.33 billion in 31 days, dropping from $34.45 billion on March 18, 2024 to $32.12 billion on April 17. The April 17 figure was the lowest the reserves had witnessed in seven years since September 20, 2017, when it stood at $32.08 billion. It was evident that this fall had started in mid-March. Before that, the reserves had grown by $1.28 billion between February 5 and March 18, 2024. But from March 18, the foreign reserves had begun to dip: Between March 18 and March 19, the reserves dropped from $34.45 billion to $34.39 billion.
The next day, it fell to $34.32 billion. Two days later, it further dropped to $34.26 billion. The drop was so consistent that in 18 days, the foreign exchange reserves had lost $1.02 billion. Within a month, that figure had almost been doubled to $2.33 billion.
The CBN Governor, denied the allegation that the foreign reserves were being depleted by “currency subsidy”. He said that the decrease in the nation’s reserves was caused by debt repayments and other standard financial obligations. But some economic and financial experts thought otherwise.
The President of the Association of Bureau De Change Operators of Nigeria (ABCON), Mr. Aminu Gwadabe has stated that the increase in capital requirements for BDCs from N35 million to N2 billion for Tier-1 BDCs is against international best practices. He also criticised the negative label given to BDCs as financiers of terrorism and the illicit flow of money. He explained that the weakening of the naira is caused by the unearned income pursuing the naira and not due to demand for the dollar noting that BDCs were not responsible for the depreciation of the naira but corruption.
Economic experts and financial analysts advised the government to boost the infrastructure space and create the conducive environment for productive economic activities. They argue that Nigerians must move away from the myopic excessive focus on exchange rates and focus squarely on growth. Growth, driven by investment in infrastructure.
The founder of Stanbic IBTC Group and ANAP Foundation, Atedo Peterside, said trying to make naira appreciate in a hurry won’t work
He observed that the urgency with which the President Bola Tinubu-led administration wants the naira to appreciate against the dollar and other foreign currencies is not the best approach to return the currency to a stronger position. He advised the government to build the reserves over time and the naira will naturally find its level.
In its recent advisory, the International Monetary Fund (IMF) noted that the cheer about the continuous rise in the value of the naira after the strong performances of the past few weeks “could be a pipe dream if Nigeria does not take on a fundamental approach to rejuvenating its economy,” warning that “the country’s economy could be at risk if it simply fails to produce.”
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
