Jide Akintunde, Managing Editor/CEO, Financial Nigeria International Limited

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Subjects of Interest

  • Financial Market
  • Fiscal Policy

Unbelievable Emefiele 22 Oct 2021

During his media chat to convey the decisions of the September 2021 meeting of the Monetary Policy Committee, the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, literally melted down. The continuing depreciation of the naira in the parallel market had exasperated him and he identified AbokiFX.com, the popular website that publishes the official and parallel market – or bureau de change (BDC) – exchange rates, as the culprit.

It was tellingly an undignified show during a live media transmission. Emefiele made serious but disarticulate allegations against the CEO of AbokiFX, Oniwinde Adedotun. The reserve bank governor questioned the veracity of the methodology the website uses to gather the data it publishes as the BDC exchange rates. He went ahead to accuse UK-based Adedotun of manipulating the exchange rate to his benefit and declared him wanted. But rather than disclose the steps towards the prosecution of Adedotun for known financial crimes, Emefiele invited him to the CBN headquarters for a “fight”.

Nigerians quickly sided with AbokiFX in the proposed David-versus-Goliath fight. They said the website was just an information platform. It was just reporting the exchange rates collected from BDCs and could not be liable for the depreciation in the value of the naira against the convertible currencies. Afterall, Uber could not be responsible for traffic jam on Third Mainland Bridge, Lagos, by simply reporting traffic flows.

The public opinion itself was not dispassionate. It revealed the frustration of the people in a dismal policymaking environment. Nigerian policymakers in the saddle enjoy little credibility, given the spectacular failure of policies to positively impact the economy and lives in recent years. Instead, high inflation continues to erode the purchasing power of the people while also creating business continuity challenges.

The notion that the government is incompetent and poorly coordinated appeared to be validated by the lack of composure by the governor of the central bank. Nigerians should have been hearing from state prosecutors on a credible case against AbokiFX and its CEO, following painstaking investigation that yielded the smoking gun. But a monetary authority without prosecutorial power was the one who has set up a kangaroo court in which he sits as the plaintiff and judge.

But it is conceivable that AbokiFX could have been manipulating the exchange rate, and that Uber may be responsible for traffic jam. Of course, a glitch in the satellite imagery system used by the ride-hailing service, which wrongly advises motorists to ply a particular road, could cause a traffic snarl. Accurate traffic information that advises motorists to divert from a road that is witnessing heavy traffic could result in a gridlock in the alternative route. Information often facilitates a positive outcome but it can also produce the opposite, sometimes.

AbokiFX could be purposely fed wrong numbers. Afterall, it was collecting information from market participants who would like to make more profit if exchange rates go up higher when they want to sell their foreign currency holding. AbokiFX, too, as a reference website, could deliberately manipulate market exchange rates, either occasionally or systematically, which is not the same thing as saying it did. Even if the website owner is not trading personally, it could use proxies. The major opportunity for abuses of forex market frameworks was created and maintained by CBN’s multiple foreign exchange rates policy. The policy creates a wide gap between the official and BDC rates.

Until this past July when the CBN announced it would no longer provide FX funding to BDCs, it virtually ruled the roost in the foreign exchange market. It was responsible for exchange rate policy, management of the foreign reserves, intervention in the official forex market as well as funding of licensed BDCs. CBN also determines eligible and ineligible foreign exchange transactions in the official market and which businesspeople get preferential FX allocation for their private businesses. It is a classical modus operandi in a banana republic.

Anecdotal evidence suggest CBN is a collaborator in the forex market malfeasance. For instance, revealing racketeering in foreign exchange by powerful people who have access to the top echelon of CBN’s hierarchy, the former CBN governor and then-Emir of Kano, Lamido Sanusi, in 2016, said: “As an emir, I can sit in my garden and make phone calls to access $10 million at N197 per dollar then sell it off at nothing less than N300. With just a phone call, I’m making a profit of over a billion naira.”

Where they exist, opportunities to exploit market vulnerabilities would be exploited. Such exploitation, at times, masquerades as entrepreneurial innovation. The open welcome to financial innovation became an opportunity that investment bankers exploited, leading to the market and economic collapse of 2008. In the era of speculation on financial asset prices, the foreign exchange market is the largest financial market in the world, in terms of daily trading volume of up to $6.6 trillion – an amount larger than the value of daily stock market trades – according to the 2019 Triennial Central Bank Survey of FX and OTC derivatives markets.

Forex traders employ “long”, which essentially means “buy”, or “short”, denoting “sell”, strategies in attempts to make money from variations in the valuation of currency pairs. The strategies have ample opportunities for speculation on fiat currencies, which have no intrinsic value and neither backed by underlining assets.

In spite of its administrative efforts, the CBN has lost its fight to prop the value of the naira by subsidising the exchange rate in the official market as well as controlling the parallel market. In June 2016, the official exchange rate was N197/$1. It is currently N410.8/$1, representing a 108.5 percent depreciation. By last month when Emefiele railed against AbokiFX, the gap between the official and parallel market was 36 percent. On the order of the CBN, AbokiFX has stopped publishing the exchange rates data. Incredibly, CBN was banking on lack of transparency in the market to shore up the value of the naira. That has so far turned out to be a fool’s hope.

There are three mutually reinforcing conditions for reversing the naira debacle: a stable political climate with the rule of law holding sway, investor confidence in the forex policy, and diversification of the sources for foreign exchange inflows through value-added exports. Capital importation to the country has all but collapsed on the state of affairs regarding the three conditions.

The CBN has continued to resist a market-based exchange rate policy. Six years ago, when oil prices fell and reduced government’s forex revenue from crude oil export, the apex bank had the option of floating the naira to allow convergence of the official and parallel market rates. Instead, it opted to continue to use its foreign reserves to subsidise the value of the local currency. The morbid fear then was that the equilibrium price for the dollar could be close to N360. Without the benefits of a market exchange rate – which include investment inflows and preserving CBN’s foreign reserves – the exchange rate has crashed beyond the level feared.

Fixing the economy and the exchange rate is more complicated now. Insecurity is disrupting the productivity of the economy. Politicians jostling for elective offices in 2023 general election may be hoarding dollars for the purpose of the electioneering.

However, if the CBN truly believes rates supplied the market by AbokiFX were being manipulated, the central bank should start its own portal to provide credible market data. The information void created by shutting down forex market data is unhelpful. If AbokiFX is certain that it had done nothing wrong, it should seek a legal remedy against the CBN. An authoritarian clampdown by the central bank should not be allowed to stand. If Emefiele wants to test his amateur boxing skills, he can start using his unofficial time to prepare for the event at the next Olympics, by which time he would have served out his second term of office.

Jide Akintunde is Managing Editor, Financial Nigeria, and Director, Nigeria Development and Finance Forum.