The Black (Parallel) Exchange Market Should Be Banned in Africa
By Mobolaji E. Aluko,
Monday, June 11, 2001
I have never changed money in Nigeria's Black (Parallel) Market, and don't
intend to any time soon. Nevertheless, back in August 2000, on my last
trip to Nigeria, I went with one of my many hosts to an open site in
Ikeja, Lagos State to watch him exchange a few hundreds of his own dollars.
As we drove up to this open foreign exchange market (this was at about 7
pm), quite a number of at least 2 dozen people were sitting around, and
very quickly a Mallam (whose turn it appeared was to attend to the next
customer) came to us to ask quite directly what denomination we had and
how much we were willing to exchange. "500 US dollars" my host said.
"115 Naira" the Mallam said the Dollar to Naira exchange rate (I don't
quite remember the exact amount that he said). "120 Naira or I will
leave," my host said.
Without much further haggling, the Mallam ran into this non-descript White
house just beyond the open yard, and came back with a bundle of Naira
under his Babanriga, and handed the bundle to my host, who counted quickly
and saw that it was N118. He handed all the money back, and we made to
leave, but the Mallam quickly said, "Ah, oga" - and brought the rest of
the money out to give my host. At that point, my host counted quickly
further, then surrendered his 500 dollars, and the quick deed was done.
Just like that.
I know that the Black Market is legal in Nigeria, but when we left the
eerie scene, I had to ask my host again: "Is this legal?" He said "Yes.
Don't you see all newspapers quote parallel market rates all the time?"
"But how do you know that his Naira are real, not fake, and how does he
know that all the dollars you gave to him are not fake?" There was no
immediate response, but I think that there was a matter of faith on both
sides. Certainly, finger-testing $500 (5 $100 notes) could not have been
a big problem for the Mallam, but how my host could so quickly be sure
that all the N60,000 bundle that was handed to him was kosher is still a
mystery to me. [I could relate another situation where all the dollars
handed to a close friend in a similar parallel market exchange were not
kosher - but I won't!]
African and Non-African Countries: Relative approaches to the Black Market
I relate this encounter in preparation to asking the question: should the
Black Market in Nigeria be so openly and legally done, and has it not
considerably hurt the value of our Naira over the years? Should it not be
BANNED once and for all NOW and a concerted effort be employed to run ALL
of its operators out of town? Can a country be so helpless about controls
of its own currency for even the government to appeal to its parastatals
not to engage in changing money in the Black market any longer, as
president Obasanjo was recently reported to have "appealed", or more
accurately "banned" such activity? Or when the governor of our Central
Bank makes optimistic statements about the appreciation of the Naira in
the parallel market? Why must our president unilaterally ban government
officials from patronising a market if it is legal? Otherwise, why is
legislation not enacted to BAN it right away, hence making government
patronage of such an activity a moot point?
Why do I ask these? For one, trading in the Black Market in Europe, Asia
and most Latin American countries is completely ILLEGAL and has been so
for as long as we know. It must be for good reason. If we look at the
foreign exchange rates of their currencies, they have largely not had
large mood swings, and if they had, certainly not due to the parallel
market, but due to occurrences such as wars, etc..
Table 1 below shows this for 30 non-African countries between 1980 and
1999, none of which closes its eyes to ANY Black market within its
borders. On the other hand, Table 2 also shows the historical trend for
both official and parallel market exchange rates for 30 African countries.
Table 3 shows the historical trend specifically for Nigeria.
-------------------------------------------------------------------------
Table 1: Official Exchange Rates Per USA Dollar ($) in selected
non-African Countries
------------------------------------------------------------------------
Country Currency 1980 1990 1994 1995 Mid-1999 Ratio*
(1) (2) (3) (4) (5) (6)
------------------------------------------------------------------------
Austria Shilling 20.7 14.5 12.1 11.0 13.3 0.643
Denmark Kroner 6.5 5.8 6.8 6.2 7.2 1.108
France Franc 5.1 5.1 5.4 5.0 6.4 1.255
Germany Deutschemark 2.8 2.2 1.7 1.6 1.9 0.679
Greece Drachma 30.0 175.6 296.0 242.0 314.0 10.467
Sweden Kronor 4.8 4.5 8.5 7.5 8.5 1.771
Switzerland Franc 1.8 1.7 1.5 1.3 1.6 0.889
UK Pound 0.4 0.55 0.68 0.66 0.63 1.575
Russia Rouble 1.3 1.5 1231.0 3232.0 24.3 18.692
USA Dollar 1.0 1.0 1.0 1.0 1.0 1.0
Argentina Peso 0.25 0.25 0.99 0.99 1.0 4.0
Brazil Real 405.5 650.6 0.85 0.8 1.8 ?
Canada Dollar 1.05 1.05 1.34 1.38 1.48 1.41
Mexico Peso 1.01 2.5 3.1 3.5 9.5 9.41
Venezuela Bolivar 4.5 4.0 102.0 170.0 607.0 134.9
Australia Dollar 0.89 0.88 1.62 1.31 1.5 1.69
India Rupee 8.0 15.0 31.1 33.8 43.4 0.417
Japan Yen 290.0 150.5 109.0 99.0 121.0 0.42
Malaysia Ringgit 0.6 1.2 2.6 2.5 3.8 6.33
Phillipines Reso 2.6 3.6 27.3 23.8 38.0 14.6
Singapore Dollar 1.0 1.0 1.6 1.5 1.7 1.7
Indonesia Rupiah 1.25 1.3 2102.0 2267.0 6875.0 5500
Iran Rial 0.6 1.0 1.35 1.4 1.8 3
Iraq Dinar 0.06 0.06 0.25 0.30 3.75 62.5
Saudi Arabia Riyal 2.5 3.4 3.7 3.8 3.8 1.52
South Korea Won 260.0 350.0 808.0 795.0 1158.0 4.45
China Yuan 3.75 4.45 5.79 8.68 8.25 2.2
Taiwan Dollar 7.75 8.25 26.7 26.3 32.3 4.17
Thailand Baht 7.9 8.4 25.4 25.0 36.9 4.67
UAE Dirham 5.01 3.75 3.68 3.68 3.75 0.75
*Ratio = (5)/(1). A ratio lower than 1 implies an appreciation of the
currency relative to the dollar over the years stated
------------------------------------------------------------------------------
Table 2 Historical foreign exchange rates for 30 African countries
------------------------------------------------------------------------
Country Currency 1980 1990 1993 1994 1999 Ratio*
(1) (2) (3) (4) (5) (6)
------------------------------------------------------------------------
1. Official exchange
2. Parallel (Black) market exchange rate
CFA Count's* CFA Franc 1. 211.3 272.3 283.2 555.2 620.0 2.93
14 countries) 2. 209.5 281.8 288.0 586.4 625.0 2.98
Botswana Pula 1. 0.8 1.9 2.4 2.7 4.6 5.75
2. 0.8 1.9 2.8 2.9 6.6 8.25
South Africa Rand 1. 0.8 2.6 3.3 3.6 6.1 7.63
2. 0.9 2.7 3.5 3.8 4.8 5.33
Zimbabwe Dollar 1. 0.6 2.5 6.5 8.2 38.3 63.8
2. 1.1 3.3 7.7 9.4 16.0 14.5
Kenya Shilling 1. 7.4 22.9 58.0 56.1 70.3 9.5
2. 8.2 23.3 91.7 66.8 70.0 8.54
Zambia Kwacha 1. 0.8 30.3 452.8 669.4 2388.0 2985
2. 1.3 121.2 531.0 805.4 - 619.5
Uganda Shilling 1. 0.1 428.9 1191.0 979.4 1454.8 14548
2. 75.7 685.8 1515.8 1292.8 1230.5 16.3
Ethiopia Birr 1. 2.1 2.1 5.0 5.5 7.9 3.76
2. 2.8 6.0 13.3 12.0 8.0 2.86
Ghana Cedi 1. 2.8 326.3 649.1 956.7 2647.3 945.5
2. 15.9 360.8 665.7 976.4 2700.0 169.8
Nigeria Naira 1. 0.5 8.0 22.1 22.0 92.3 184.6
2. 0.9 9.3 56.8 71.7 105.0 116.7
Guinea Franc 1. 19.0 660.2 955.5 976.6 1105.0 58.2
2. 41.7 693.3 1156.9 1074.1 1150.5 27.6
Liberia Dollar 1. 1.0 1.0 1.0 1.0 41.9 41.9
2. 1.1 5.5 40.0 45.0 60.5 55
Libya Dinar 1. 0.3 0.3 0.3 0.3 0.4 1.33
2. 0.5 1.0 1.7 1.6 2.3 4.6
Egypt Pound 1. 0.7 1.5 3.4 3.4 3.4 4.86
2. 0.8 2.6 3.4 3.4 - 4.25
Algeria Dinar 1. 3.8 9.0 23.3 35.1 66.6 17.5
2. 10.9 29.8 106.8 128.7 135.0 12.4
Mauritius Rupee 1. 7.7 14.9 17.6 18.0 25.2 3.27
2. 7.8 15.7 18.3 18.4 24.0 3.08
*The CFA countries (the 14 members of the CFA Zone were: Benin, Burkina
Faso, Cameroon, Central African Republic, Chad, Comoros, Congo, Cote
d'Ivoire, Equatorial Guinea, Gabon, Mali, Niger, Senegal and Togo.
Guinea-Bissau became the 15th member on August 1, 1997) have their
currency pegged to the French Franc, but in January 1994, the CFA franc
was devalued by 50 per cent to CFA Fr100 to the French franc
Sources for Tables 1 and 2:
1. African Development Indicators 2000; World Bank, DC, USA
2. London Economist Intelligence Units World in Summary
------------------------------------------------------------------------
Table 3: Average Naira Exchange Rates (1970 - 2001)
----------------------------------------------------
Year $1 = Naira BP1 = Naira Head of State
----- ----------- ----------- -----------
1970 0.7143 1.7114 Gowon
1971 0.6955 1.7156 "
1972 0.6579 1.6289 "
1973 0.6579 1.6289 "
1974 0.6299 1.4795 "
1975 0.6159 1.3678 Gowon/Mohammed
1976 0.6265 1.1317 Mohammed/Obasanjo
1977 0.6466 1.1671 Obasanjo
1978 0.6060 1.2238 "
1979 0.5957 1.2628 Obasanjo/Shagari
1980 0.5464 1.2647 Shagari
0.9 PMER
1981 0.6100 1.2495 "
1982 0.6729 1.1734 "
1983 0.7241 1.1216 "
1984 0.7649 1.0765 Buhari
1985 0.8938 1.1999 Buhari/Babangida
1.7 PMER
1986 2.0206 2.5554 Babangida
3.9 PMER
1987 4.0179 6.5929 "
5.9 PMER
1988 4.5367 8.0895 "
6.7 PMER
1989 7.3916 12.0695 "
10.7 PMER
1990 8.0378 16.2419 "
9.3 PMER
1991 9.9095 17.4955 "
6.7 PMER
1992 17.2984 27.8684 "
21.9 PMER
1993 22.3268 33.2522 Babangida/Abacha
56.8 PMER
1994 21.8861 A 33.4252 Abacha
71.7 PMER
1995 21.8861 34.7111 "
78.3 PMER
79.8955 AFEM 127.66 AFEM
1996 21.8861 35.7368 "
81.8 PMER
84.5750 AFEM 135.90 AFEM
1997 21.8861 35.7368 "
84.7 PMER
84.7004 AFEM 136.60 AFEM
1998 21.8861 35.7368 Abacha/Abubakar
88.0-90.0 PMER
85.0004 AFEM 136.00 AFEM
1999 (July) 85.9800 137.4680 Obasanjo
105.0 PMER
94.88 AFEM 145.71 AFEM
2001 April 115.7 Obasanjo
140 PMER
PMER (Parallel Market Exchange Rate or "Black" Market)
AFEM (Autonomous Foreign Exchange Market); official dual exchange rate
started in 1995, and abolished in October 1999 and replaced by daily
Inter-Bank Foreign Exchange Market (IFEM), which in effect is the official
exchange rate.
Sources: Central Bank of Nigeria, Statistiscal Bulletin, Vol. 7, No. 2,
December 1996, Table D.31, page 188 for figures up to 1996. CBN Annual
Reports 1996-1999; CBN Foreign Exchange biddings and newspaper reports.
-------------------------------------------------------------------------
If we eliminate the two highest outlier 1999/1990 exchange ratios
(official: non-Africa - Indonesia and Brazil ; official: Africa - Uganda
and Zambia ; parallel: Africa - Ghana and Zambia), we see that the
average devaluation ratios for the remaining 28 countries in each category
are as as follows:
Non-African countries: Official: 10.5 devaluation ratio
(average of 28 countries)
African countries : Official: 48.7 devaluation ratio
Parallel: 11.5 devaluation ratio
(average of 28 countries)
Africa non-CFA: Official: 101.8 devaluation ratio
Parallel: 20.0 devaluation ratio
(average of 14 countries)
If one understands that the official position is invariably to overvalue a
country's currency while the parallel market would tend to reduce that
value relative to foreign currency (the dollar in this case), then the
trend in Table 2 clearly shows that the devaluation by the parallel market
has almost invariably been tracked by that of the official rate, with the
official African exchange rate actually on average trying to over-correct
(by a factor of 5) for its seeming under-valuation of its own currency.
The non-CFA African countries have fared much worse than their CFA
counterparts.
Clearly, for those who have both the local and foreign currency OUTSIDE
the traditional (and hence easily monitored) banking system - including
both drug and other corruptly-acquired foreign cash denominations - it is
convenient to create an environment for currency speculation and "round
tripping" (buying currency low from the Central Bank and selling it high
to interested buyers at the parallel market), particularly when the
impression or reality of difficulties of obtaining foreign exchange
through the normal official banking system exists.
Attempts by governments to "close the gap" between the official and
parallel markets in order to use ordinary market forces to "drive out the
parallel market " almost invariably have led to another cycle of parallel
market devaluation followed by yet another official attempt to close the
gap, etcheram, ad nauseum. An inspection of Table 3 shows that in
Nigeria, for example, a dual exchange regime came into effect in March
1995 when the official rate (at N22/$1) was supplemented with an
Autonomous Foreign Exchange Market (AFEM) rate of about N80/$1, the latter
being in reaction to an existing parallel (black) market rate of N78/$1.
Within three years, while the official rate was held steady, the AFEM rate
inched up and then held steady during much of the Abacha regime at N85,
while the parallel market rate gained steadily to N90. By July 1999, one
of the first steps of the new president Obasanjo was to in effect
depreciate the Naira by doing away completely with the confusing N22
exchange rate, with the AFEM rate jumping to N95. The parallel market did
its own jump to N105. The AFEM was abolished on October 25, 1999 and
replaced with an Inter-bank Foreign Exchange Market (IFEM) regime,
becoming in effect the official exchange rate of note since the government
abandoned the earlier regime of "fixing" an exchange rate all by itself.
In recent weeks, IFEM rates have varied from N110 - 120, while the
parallel market has wavered from N120 - 140 per dollar.
In short, in this official/parallel market situation, we have the tail
wagging the dog, and at the same time, the dog trying to bite the tail in
a never-ending circle of exhaustion and near-death.
Until and unless this chain is broken by OFFICIALLY banning the Black
currency market, this recurrent devaluation of the respective currencies
due to parallel market influences will continue unabated. This first step
towards control of our currencies, of course, does not absolve the
government from ensuring other worthy fiscal and monetary policies, as
well as stemming corruption and diversifying tthe countries' productive
capaciites.
Epilogue
My conclusion, therefore, is that the Black (Parallel) Market should be
banned throughout Africa, and certainly in Nigeria, because we cannot
allow criminal activity to guide official policy while such activity to
continue openly with impunity. It is not allowed elsewhere, so why must
we officially hoodwink crime against our currency in Africa?
These are questions that inquiring minds want to know.
---------------------------------------------------------------------
References for further reading
------------------------------
http://allafrica.com/stories/200106080283.html
Naira Rides Higher, Rates Dip in House Hearings
The Guardian (Lagos) June 8, 2001
http://allafrica.com/stories/200106070204.html
Why the Naira is Falling, By Sanusi
The Guardian (Lagos) June 7, 2001
http://allafrica.com/stories/200105250387.html
President Orders Fresh Measures to Shore Up Naira
The Guardian (Lagos) May 25, 2001
http://allafrica.com/stories/200105180229.html
Government Bars Officials From Forex Market
Impelled by the urgent need to save the naira from further fall, against
other world currencies, the Federal Government yesterday took a bold step
when it barred all its officials from patronising there parallel market.
It has also started probing some banks for round-tripping of forex.
The Post Express (Lagos) May 17, 2001
http://allafrica.com/stories/200105170037.html
Obasanjo Bars Govt Officials From Parallel Market
President Olusegun Obasanjo yesterday barred government officials from
patronising the foreign exchange parallel market henceforth, as part of
the strategy to save the naira from further depreciation.
Vanguard (Lagos) May 17, 2001
http://allafrica.com/stories/200105160346.html
Central Bank, Customs Department Now to Brief Obasanjo On Economy
This Day (Lagos) May 16, 2001
http://allafrica.com/stories/200105150265.html
Currency Black-Market Batters Zim Dollar
African Eye News Service (Nelspruit)
May 15, 2001
http://allafrica.com/stories/200105140739.html
Central Bank Blamed Falling Naira
Panafrican News Agency May 14, 2001
http://allafrica.com/stories/200105140392.html
Naira Appreciates At Black Market
This Day (Lagos) May 14, 2001
http://allafrica.com/stories/200105110049.html
Obasanjo to Battle Defects in Nigeria's Foreign Exchange
Panafrican News Agency May 11, 2001
http://groups.yahoo.com/group/AlukoArchives/message/48
MID-WEEK ESSAY: Defending The Naira, Nigeria's Currency - Some, Thoughts
Mobolaji E. Aluko, April 25, 2001
-----------------------------------------------------------------------------
Dr. Mobolaji E. Aluko is Professor & Chair of Chemical Engineering at
Howard University, Washington, DC. He can be reached on
----------------------------------------------------------------------------
--Henry Boyo's point in the essay below is that Dollar scarcity is due not only to those who are genuinely demanding it for manufacturing, school, etc., but due to those who have EXCESS Naira (in their bank accounts or in their bedrooms or water wells) who are buying up dollars as a store for those Naira. So if you look to solve the forex problem only by acknowledging Group 1, the problem will never be solved no matter how much forex you make availableThanks for the explanation/ clarification Prof Aluko.And how does Boyo propose to solve the problem of "..those who have EXCESS Naira (in their bank accounts or in their bedrooms or water wells) who are buying up dollars as a store for those Naira"?JoeSent from my iPhoneJoe Attueyi:Henry Boyo's point in the essay below is that Dollar scarcity is due not only to those who are genuinely demanding it for manufacturing, school, etc., but due to those who have EXCESS Naira (in their bank accounts or in their bedrooms or water wells) who are buying up dollars as a store for those Naira. So if you look to solve the forex problem only by acknowledging Group 1, the problem will never be solved no matter how much forex you make available.Boyo's earlier suggestion of dollarizing some of the state government's revenue allocation is not unconnected with the suspicion that the Federal Government SHORTCHANGES states when it converts some of the dollar earnings (say from oil) to Naira using conversion rates that may not be favorable to the states due to forex movements. It may also encourage states to make dollar investments without having to apply through the Federal Government, thereby enhancing "federalism".Events may have taken that suggestion now, as we struggle with low oil earnings.Bolaji Aluko--On Fri, Dec 30, 2016 at 3:58 AM, 'Joe Attueyi' via AfricanWorldForum <africanworldforum@googlegroups.com > wrote:--Prof AlukoHenry Boyo and I had these debates on some other forum about a year ago where he was arguing that dollars received into the federation account should not be paid /'auctioned ' by CBN into Naira as it increased 'Naira liquidity and bringing about devaluation of the Naira vis a vis the dollar '. He suggested that the Federation should pay dollars directly to the states. I could never understand how paying dollars to the states addresses the problem he identified and had to move on from the debate.I still don't understand his suggested solution and will pass on his debate once again.Joe
Sent from my iPhone--Joe Attueyi:Please read this, which I believe:QUOTENevertheless, despite our reduced export revenue, unless, there is an urgent intervention by either President Buhari or the Legislature, Naira liquidity surfeit would clearly remain a challenge to poverty alleviation and the realisation of vibrant and inclusive economic growth in 2016 and thereafter. Advisedly, however, the adoption of dollar certificates/warrant for allocating dollar denominated revenue will surely minimise Naira liquidity and shore up the Naira value in the market and also positively restrain inflation. A steady hardening of Naira exchange rate will also gradually encourage public preference for the Naira as a stronger store of value than the dollar.
Evidently, so long as CBN continues to tackle the problem of an ever sliding Naira rate from the prism of demand for dollars, rather than frontally addressing the bogey of eternally surplus Naira, the end of our economic dislocation and deepening poverty will never be in sight.
UNQUOTEAnd there you have it.Bolaji Aluko---------Nigeria: Naira Exchange Rate - CBN Don Miss Road!
January 6, 2016
By Henry BoyoThe Central Bank of Nigeria, is, obviously losing the battle to arrest inflation and the unyielding slide in the Naira's exchange rate. With inflation consistently closer to 10 per cent, all static incomes have lost over 40 per cent of purchasing values since 2010; thus, the laborer's N18,000 minimum wage may just be worthless than N10,800 today; inevitably, elder citizens whose pension incomes are static, have also become destitute.
However, spiraling inflation is usually, primarily, triggered by uncontrolled and liberal money supply (otherwise known as excess liquidity), chasing relatively few goods and services. Indeed, spiraling inflation spells doom for the economy and people of any country. Monetary authorities in successful economies, invariably endeavour to keep inflation below two per cent by avoiding a surfeit of money supply!
The prevailing irrepressible inflation rates were compounded by over 25 per cent Naira devaluation this year. Consequently, the Naira plummeted from N160 to below N270=$1 in the parallel market, while the huge margin between both rates has expectedly encouraged financial malfeasance with significant market distortions, which discourages any serious commitment to grow the real sector, and create more jobs.
Historically, Nigeria's discomfortingly rising rate of unemployment and deepening poverty correlates loyally with the Naira's steady depreciation from 50 kobo to N197=$1; thus, in order to enjoy the same purchasing value that 50 kobo commanded before 1980, Nigerians must perform the impossible task of working almost 400 times harder today!
Incidentally, dollar scarcity cannot be the primary cause of weaker Naira exchange rates as often alleged; for example, Nigeria earned bounteous dollar revenue when crude oil prices rose steadily from $53.41/barrel in 1979 to well over $140/barrel in 2008, while average output has also remained consistently above two million barrels/day since return to civil rule; indeed, part of the fortuitously, consolidated revenue surplus of over $12 billion was sunk into the power sector without much impact, while another $18 billion also became available for the controversial London/Paris Club debt exit.
Furthermore, in compliance with IMF recommendations to liberalise our 'embarrassingly' increasing dollar supply, the CBN licensed about 3,000 Bureaux de Change and provided them with weekly dollar allocations that often exceeded total forex provision to the real sector; ironically, Nigerians could, in addition, access up to $150,000 with Naira debit cards at official exchange rates from ATMs abroad annually. However, despite our healthy reserve base, Naira, inexplicably, still depreciated from N80 to N160=$1!
Nevertheless, in order to conserve forex, in the wake of the present collapse in crude prices, CBN has reduced international ATM withdrawals to $300/day (about $110,000 annually); inexplicably, every account holder is also entitled to additional $7,000 weekly ($336,000 annually), for international POS Transactions. Curiously, CBN has kept these individual forex windows wide open, while genuine real sector businesses which add value and create jobs are constrained to patiently await official allocations or alternatively patronise, oppressive black market dollar rates to fund their operations.
Instructively, however, if the primary cause of Naira's depreciation is not identified and addressed, the forex market would steadily become unraveled and the parallel market rate may alarmingly exceed N400=$1 with disastrous economic consequences in 2016.
Historically, CBN's attempts to manage Naira exchange rate have always been targeted at curbing dollar demand. However, increasing dollar demand is actually a function of public perception of the dollar as a stronger and safer store of value than Naira. Thus, unless actual market dynamics alter this perception, any attempt to control dollar demand or restrict access to supply, will invariably only instigate further rejection of the Naira as a safe store of value, and the demand pressure for the dollar will persist.
If, however, the CBN recognises that persistently surplus Naira is the prime determinant of the dollar/Naira exchange rate, then, our decades long sojourn in the wilderness of monetary strategy will end. Evidently, the unceasing suffocation of systemic Naira liquidity invariably weakens Naira exchange rate in a market where CBN, conversely auctions 'small' rations of dollars weekly.
Incidentally, former CBN Governor, Chukwuma Soludo noted after an MPC meeting in June, 2005 that:
"The major source (cause) of huge liquidity injection has been the monetisation (read as the substitution of naira allocation for dollar denominated revenue) of $1billion from the 2004 excess crude earnings amounting to over N160 billion and this has contributed to the liquidity surge." Soludo therefore warned that... "the (adverse) consequences of excess liquidity (inflation and weaker Naira) stare us in the face." If, indeed, according to Soludo, Naira substitution for just $1billion distributable revenue wreaks such havoc on liquidity, one can only imagine what damage Naira substitution for an estimated $30 billion annual distributable revenue would cause.
Instructively, however, just two weeks to the end of 2015, in deference to the prevailing problematic liquidity surfeit, the CBN again indicated its intention to borrow and store another N135 billion as idle funds.
Similarly, the CBN also decided to remove N1,220 billion ($6.13 billion) from the projected systemic Naira liquidity with sales of government Treasury bills before March ending 2016. Notably, Treasury Bill sales is CBN's instrument of choice for reducing money supply, and establishing price stability in the market place.
Furthermore, later in December 2015, the Apex Bank and the Debt Management Office also borrowed over N50 billion long term loans, despite the attendant double digit interest rates which are clearly inconsistent with sovereign, risk free, loans of resource-endowed countries such as Nigeria. Revealingly, these government loans were all oversubscribed by well over a 100 per cent, i.e. a loud attestation to the prevailing high systemic liquidity, and also testimony of the stranglehold of banks on sovereign debts in preference to real sector lending.
Indeed, it is questionable why credit from Nigerian banks should be so expensive in a money market that is allegedly weighed down by Excess Naira liquidity. Surely, no commodity becomes more expensive when it is in surplus supply.
Nevertheless, despite our reduced export revenue, unless, there is an urgent intervention by either President Buhari or the Legislature, Naira liquidity surfeit would clearly remain a challenge to poverty alleviation and the realisation of vibrant and inclusive economic growth in 2016 and thereafter. Advisedly, however, the adoption of dollar certificates/warrant for allocating dollar denominated revenue will surely minimise Naira liquidity and shore up the Naira value in the market and also positively restrain inflation. A steady hardening of Naira exchange rate will also gradually encourage public preference for the Naira as a stronger store of value than the dollar.
Evidently, so long as CBN continues to tackle the problem of an ever sliding Naira rate from the prism of demand for dollars, rather than frontally addressing the bogey of eternally surplus Naira, the end of our economic dislocation and deepening poverty will never be in sight.
------------------------------
------------------------------ ------------------------------ ------ On Thu, Dec 29, 2016 at 5:57 PM, 'Joe Attueyi' via AfricanWorldForum <africanworldforum@googlegroups.com > wrote:The Government needs to stop meddling with the exchange rate. Let the market determine the rate even if it is N600 / $. At least it will be one unified rate around which people can plan.
1. Ameliorate the impact on manufacturers by reducing/ eliminating duty and VAT on imported raw materials and machinery
2. Use the increased Naira inflow into the federation account to fund specific items like free quality basic education for our kids.
3. This myriad of 12 different exchange rates in one economy is neither fish nor fowl and will not work
Joe
https://www.thecable.ng/bdc-operators-president-worried-and- disturbed-as-naira-plunges-to- 490
Sent from my iPhone
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