Emefiele’s Summer Season Mistake Responsible for FX Crisis

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Analysts say Central Bank of Nigeria (CBN) Governor Godwin Emefiele’s decision to restrict the supply of foreign exchange to the Bureau De Change (BDCs) during the summer period is responsible for the severe pressure on the exchange rate.

The Naira at the parallel market had depreciated by 8.2 percent to N550/$, while the I&E window has remained relatively stable, currently at N412.75/U $. Thus, the parallel market premium had worsened to 33 percent from 23 percent when the policy was made on 27 July 2021.

There usually used to be a rush for foreign currencies during the summer period as customers have to meet travel expenses and school fees, and the policy maker ought to have taken the decision in the last quarter of the year, analysts said.

“While the CBN’s action seems justified based on the illicit financial behavior of the BDC operators, we believe the timing of the ban (summer period: June-August) is inopportune. The summer period is characterized by pent-up FX demand to meet personal travels and educational needs,” said analysts at CSL Stockbrokers Limited.

“Though the apex bank redirected the FX supply previously meant for the BDCs to commercial banks, restrictions on FX demand limit placed by the banks on customers have not changed and stringent requirements to access FX from the banks can be discouraging for some. As such, customers have resorted to getting FX from the parallel market, pushing exchange rates to new levels,” said the analysts.

The central bank’s policies historically have not helped to ease foreign exchange pressures, instead, they are always mistimed.

In 2016, when the CBN took a similar action-to stabilize an economy that was reeling from the devastating effect of the precipitous drop in crude oil price of mid-2014- it yielded limited results, as the parallel market premium was estimated at 61 percent as of year-end.

Some economists MoneyCentral spoke to believe Godwin Emefiele’s abrupt decisions are undermining the economy, and are looking in retrospect at his capital control measures such as the ban on over 40 items from the Apex bank foreign exchange windows.

While the governor’s introduction of the Investors’ and Exporters’ window in 2017 temporarily eased the flow of foreign currency in the market, the inability of foreign portfolio investors (FPIs) to get foreign exchange (FX) for repatriation has stalled foreign portfolio inflows, a major source of dollar supply into the economy.

Foreign investors’ apathy toward the equity or Naira market stemmed from the fact that the central bank is not nimble enough to weaken the currency at the exact time needed to unlock the potentials in the economy.

Foreign Exchange Reserves in Nigeria have gone nowhere in the past year, standing at $35.36 billion as at September 2021, which compares with $35.73 billion as at October 2020, according data from the CBN website.

Little wonder Godwin Emefiele got an average (C) grade from the Global Finance Institute, in its latest ranking of central bank chiefs across the globe.

The report showed that Abdellatif Jouahri, the Governor of Bank al-Maghrib (Morocco), earned an “A grade,” which is the highest distinction awarded by “Central Banker Report Cards” for the fourth time in a row. He was credited for his efforts in tripling the supply of funds to commercial banks and expanding the range of bonds and securities the apex bank would accept in exchange for refinancing.

The majority of economists polled by MoneyCentral last week believe the measures rolled out by the CBN to fight the rising premium between the I&E and black market rates such as going after websites like AbokiFX were likely to be ineffective in easing the pressure at the parallel market.

At the end of its last Monetary Policy Committee (MPC) meeting held on September 16th and 17th, the CBN reiterated that Nigeria’s only recognised exchange rate is the investors and exporters (I&E), where legitimate FX demands are met.

The monetary authority also noted that selling FX from the reserves to BDCs is not a global best practice. Therefore, it emphasised that the decision to stop sales to the sector would not be reversed. The CBN disclosed that it will go after illegal currency dealers, including individuals who illicitly obtain dollars from banks in the guise of having BTA and PTA-related needs.

The apex bank is also investigating AbokiFX, its owner, and complicit companies for allegedly participating in FX manipulation, illegal fixing of USDNGN rates, and economic sabotage.

AbokiFX, a web platform that reports movements in the foreign exchange market, over the weekend suspended operations after the Central Bank of Nigeria (CBN) placed its owners on investigations.

The platform said this in a notice posted on its website on Friday.

At the end of the monetary policy committee (MPC) meeting on Friday, Godwin Emefiele, governor of the Central Bank of Nigeria (CBN), confirmed the investigation of Oniwinde Adedotun, the founder of abokiFX.

Speaking on the allegations, Emefiele claimed that Oniwinde used his website for forex manipulations and speculations by purchasing forex to make a profit — describing him as an illegal forex trader.

But in a statement on Friday evening, abokiFX distanced itself from the allegations, saying the platform is solely for parallel rate information and not trading.

“abokifx has taken the decision, today, 17th of September 2021, to temporarily suspend rate updates on all our platforms until we get better clarity of the situation,” the statement reads.

“Final rates have been posted this evening, but the abokiFX news section and the Crypto rates section will still be active.

“abokiFX was established in 2014 as a research and information service company, to conduct market research and gather data on the parallel market rates. We also wanted to provide some transparency around the parallel market with the available information technology. abokiFX purely provides benchmark parallel rate information which helps guide our users in almost 200 countries across the world.

“abokiFX does NOT TRADe FX, which we have always maintained in our emails and social media platforms.”

The platform said it has not received any official communication from any government agencies and its accounts are intact.

“All allegations against our director are yet to be confirmed but we at abokiFX DO NOT trade FX neither do we manipulate parallel market rates”, the statement adds.

“Outside the media allegation, we have not received any communication from any government body and our accounts are not closed as stipulated in the media.

“abokiFX is fully functional BUT we will not be publishing any form of rates on our platforms for now. We sincerely hope this suspension will lead to the Naira appreciation from next week.

“With our decision to temporarily suspend online rate publication, we are aware that there will be limited visibility of parallel rates information which will impact decision making for many.”

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