THE POLITICS OF NAIRA DEVALUATION

The consistent speculative attack on the Naira is indeed worrisome, while not taking anything away from CBN Governor, Godwin Emefiele’s submission of no need to panic. Unfortunately, the Naira is being attacked by three strange forces which the CBN could only control two while the third is almost impossible to control due to its operational composition.

While the CBN is busy using its monetary policy instruments to stabilise the Naira and the foreign reserve to shore up its value, the real speculative attack continues which has cumulated into the Naira trading at between N208 and N211 parallel market rate.

However, according to Morten Bugge, the chief investment officer at Global Evolution AS, the Central Bank of Nigeria has enough foreign reserves to defend the naira and will probably avoid devaluation before the general election in February. While foreign-currency reserves dropped to a three-month low of $38.3 billion, it is still enough to cover about seven months of imports, according to data compiled by Bloomberg.

“The chance of devaluing it now is close to none,” said Bugge, who oversees $2.3 billion emerging-market assets, including naira-denominated bonds, by phone. “The market is testing the central bank. The ball is in their court.”

Contrary to this asertion, the ball is not entirely in the CBN Court because the real question is how you defend the Naira against political hording of dollars as political war chest to win the all-important February elections. The CBN ought to have initiated this battle as early as June 2014 to ensure that the Dollar/Naira exchange rate does not cross the N200 band.

This is couple with the financial markets rumbling as reported by Ventures Africa and Reuters, a few days ago the Financial Markets Dealers Association (FMDA), a grouping of 40 banks, discount houses and brokerages, apparently rebelled against the Central Bank’s pricing of the Naira, the apex bank has hit back, threatening fire and brimstone on those who dare question its authority over the trading of the struggling local currency.

CBN Governor, Godwin Emefiele, warned banks and end users of foreign currencies, that the CBN would suspend their dealership licenses and bar erring companies from its foreign exchange windows, if they continued indulging in speculative and forward trading on the naira. This is as Ventures Africa published a bare-all piece, citing a Reuters report, on the ongoing currency squabble in the top echelons of the banking industry.

The article revealed that following Emefelie’s monetary policy speech last week, in which he declared that the naira was ‘appropriately priced’, all Nigeria’s banks refused to trade for about 3 hours while their top dealers met behind closed doors to chew over the Governor’s pronouncements. Among the decisions reached by the FMDA was an unofficial ‘circuit-break’ agreement to halt trade if the naira fell more than 2 percent in a day.

FMDA’s chief executive, Wale Abe, was quoted in the report as describing the move as an “entirely voluntary measure to curb volatility, in line with the body’s support for financial market stability and maturity.” Final Warning However, Emefelie has hit at commercial banks and dealers, accusing them of the habit of speculating on naira exchange rate and making money out of it.

He even asked if that was the reason they sought banking license. Speaking at a stakeholders breakfast meeting on recent developments in crude oil price and foreign exchange market in Lagos, the CBN boss lamented that the action of such operators was putting the local currency under pressure thereby precipitating its sustained depreciation against most foreign currencies.

He also kicked against the panic buying because of Nigeria’s falling foreign reserves, averring that the country’s $34 billion reserve was adequate to see it through the challenging times. “In 2007, we had a foreign reserve of about $10 billion and the Nigerian economy did not collapse and we were still able to navigate through the period. Then why would somebody panic now that the reserves have gone up to $34 billion,” he said. He also refused the advice by stakeholders for the CBN to stop its defense of the naira, stating instead that bank regulator would continue to play its role of price and exchange rate stability through the managed exchange rate regime.

Not doing so, he argued, would amount to creating an atmosphere for hyper inflation and further weaken the purchasing power of Nigerians. Fine tuning battle tools  Emefiele says the CBN is already in the process of carrying a comprehensive reform of the Nigeria’s Forex operation, which will ensure that only genuine demands are met in its official forex window. He declared that those who want to use the currency struggles as an opportunity to over invoice and send money overseas and those that want to evade taxes may soon burn their fingers.

The CBN boss also warned importers that cheat through its windows that the time would soon be up for them as it would issue guidelines to curb forward trading activities that escalate exchange rate to as high as N190 to the dollar. Light at the end of the tunnel Despite the gravity of Nigeria’s current economic challenges, Emefiele says there’s room for optimism as the nation could still witness some price reversals with respect to crude oil prices.

He assured that the apex bank would continue to defend the economy and businesses domiciled in the country with right policies as the need arises. He also claimed that the government is already taking steps to diversify the economy such that it would no longer be susceptible to shock like what was going on at the moment. In the same vein, he called on the business community to aid the resuscitation of the economy. He advised that they shun the massive importation syndrome of even goods that can be produced in the country, something he blamed for the depletion of the country’s foreign reserves.

It is pertinent to note that Post-Election Naira devaluation is inevitable unless there is a turnaround in the global oil market in positive direction to increase the foreign reserve, if this scenarios fails to materialise then devaluation of the Naira is inevitable, unless there is political will to block massive importation of good and services readily available in Nigeria to support the CBN to reign in economic leakages fuelling speculative attack on the Naira.