Joe Attueyi:
First, I would really love the roles of the CBN to be split into two or even three - like you have described for the UK. I have always believed that REGULATION in Nigeria is POLLUTED by a paddy-paddy system. And this is in ALL sectors - education, telecoms, banking.......I have argued too that some roles of the National Universities Commission also be split - you can't be the APPROVER of Universties, then the STANDARDS organization, and its FINANCIAL regulator, etc.
Secondly, yes, I have no problem with supply and demand in an un-manipulated market. The Law of Supply and Demand in trade is a natural law, like gravity. Tipping the scales - and manipulating the market - is illegal.
Thirdly: remember what Prof. Ojowu said: currency is BOTH a store of value AND a medium of exchange. So we kid ourselves if we think that "supply and demand" of currency is anything like "supply and demand" of (say) yams. When (particularly) corrupt people hoard naira (to exchange them for dollars to store their value for later use) and dollars (to raise their immediate exchange value when converted to Naira) OUTSIDE the banking system, that distorts the currency market.
And there you have it.
Bolaji Aluko
On Thu, Mar 9, 2017 at 11:19 PM, 'Joe Attueyi' via AfricanWorldForum <africanworldforum@googlegroups.com> wrote:
--Prof AlukoMany a time we all tend to concatenate unrelated issues thereby making the simple complex.The CBN is not just responsible for our monetary policies like the Bank of England but is also the regulator of our financial institutions like the U.K.'s FCA1. It is the job of the regulator to ensure that activities in the financial sector are done TRANSPARENTLY.This is a job the CBN ought to do regardless of the monetary policy it pursues.So when you and Ojowu talk of 'manipulated market' I don't see what that has to do with monetary policy. In the UK today it is the FCA that regulates against any form of 'market manipulation ' by any of the numerous players in the financial services sector. And the FCA is a distinct body from the Bank of England1. The CBN , in its role as financial services regulator, has a duty to ensure transparency in all the activities of all operators in our financial services sector.It cannot , and must not , use a failure in carrying out its regulatory remit to hoist on us a wrong headed monetary policy2. BTW are you now saying that once CBN as bank regulator ensures transparency ( or weeds out 'market manipulation ') in the sector you are happy with a monetary policy that is market determined?That will be a huge step forward. I am sure that the guys at CBN--if they so wish--can chew gum and walk at the same time!JoeSent from my iPhoneJoe Attueyi:Prof. Ojowu's point - which too has always been my point - is that a manipulated market is not the "market" that your orthodox economics of supply and demand contemplates. Putting your finger on the scale, and then selling me a "pound" of meat at one-and-a-half-times its true price is NOT the price of of a pound of meat.One does not need to go to school even to be aware of the Laws of Supply and Demand.Bolaji Aluko--On Thu, Mar 9, 2017 at 10:04 PM, 'Joe Attueyi' via AfricanWorldForum <africanworldforum@googlegroups.com > wrote:--Macroeconomic Stability: To achieve the growth aspirations, the first requirement is a stable macroeconomic environment with low inflation, stable (market reflective) exchange rates and sustainable fiscal and external balances. This requires that monetary, trade and fiscal policies are well aligned to ensure coherence and effective coordination. The Federal Government, through the CBN, will continue to work towards improving the operations of the foreign exchange market to enhance its liquidity. Non-oil revenue will be accelerated through improved tax and Customs administration, including introduction of tax on luxury items. This would ensure a more diversified fiscal revenue base away from the current dependence on crude oil and gas. Fiscal consolidation will also be pursued through cost cutting measures that include rationalization of overheads and recurrent expenditures and sub-national fiscal coordination. Selected public enterprises/assets will be privatized to optimize their efficiency and reduce fiscal burden on the government.
Prof AlukoThe above is an extract from the Government's Economic Recovery and Growth Plan.We cannot continue debating monetary and fiscal policies ad infinitum.It is reasonable to assume that the CBN had input into this economic plan. Now is Time to get to work and IMPLEMENT "..stable (market reflective) exchange rates "Prof Ojowo is late to the debate.JoeSent from my iPhone--QUOTEThe CBN appears to have, in its recent measures, taken the view that we do not need to take the market forces of demand and supply as GIVEN. The reason being that what manifests as 'demand and supply' in most settings including ours, often emanate from organised manipulation of the market by a few selfish and unpatriotic expert voices for their gain. As it appears this time around, the CBN has decided to become smarter than the market manipulators, by putting on its cap of authority to look beneath the market forces. The Bank has not only taken advantage of the improved supply of FX for which it has little control over, but has also interrogated the demand side of the FX equation. Immediately beneath the demand side is a pile of 'fake' demands for the green back. The hands of banks are up in the air in suggestive innocence as to who is funding the fake demand. Determined to stem the tide of embarrassment and rescue the Naira, the CBN has moved to pin down the demand for the dollar and regain oversight on payments for medicals, school fees and travels which used to be the immediate layer of the smoking screen. And marginal fraudsters have taken flight.UNQUOTENigeria's FX market and CBN's containment initiativeBy Ode Ojowu |Mar 7 2017Nigeria's FX market and CBN's containment initiativeAt the risk of being perceived as sounding alarmist, permit me to say that the Central Bank of Nigeria (CBN) has just averted a potential social upheaval because of its recent successful intervention at the foreign exchange market. At over N500 to a dollar, the exchange rate had crossed a very significant psychological mark. Left unattended or had the Bank approached the situation in the business-as-usual manner, it would perhaps have been only a matter of days for the Naira to lose its last and remaining attribute as a medium of exchange, having already lost its attribute as a store of value.Foreign exchange rate management in any economy that relies on a single product for its FX supply could be a very daunting task for its central bank. In what had appeared as the helplessness of the CBN to halt the decline in the exchange rate value of the Naira against the dollar, it is not surprising that the recent success in halting the slide has elicited so much interest. The simple reason is that everyone can connect directly with the reality of a failing currency than they can with say, movements in the balance of payments.This direct impact is a reason people can take to the streets in protests as has happened in Latin America and South East Asia and Egypt, for example. We should be thankful that the temporary firming up of the exchange rate value of Naira has brought psychological relief as well as the potential for dampening of the inflationary pressures if sustained. For this we should note that it is a cycle; exchange rate is a significant predictor of inflation rate and output.Essentially, currency economics is not the preserve of the highly learned alone. In fact, an hour chat with an honest black market forex dealer opposite Sheraton Hotels in Abuja could cause even the economic policy maker or business analyst to begin to re-examine his models and knowledge of the workings of the economy. Expectedly, the recent policy actions of the CBN and the accompanying moderation in black market exchange rates are still being explained. For some, those I would refer to as the 'highly vocal few', it is simply another triumph of the market mechanism. And we must not deny the role of the supply side of the force in this regard. CBN has experienced an improvement in the supply of dollars as export volumes increased, thanks to the reduction in militant activity, along with improvement in crude oil prices.To provide some context, in 2015, the Nigerian economy started to experience considerable slowdown in GDP growth. In attempt to stem the slide in GDP growth, the CBN in November 2015 introduced the so-called asymmetric corridor to encourage banks to lend to businesses rather than deposit monies with the CBN. This measure increased excess liquidity instead. In 2016, the CBN hiked its benchmark monetary policy rate (MPR) to rein-in excess liquidity and ease the pressures on the Naira and inflation. Proponents of the market forces looked forward to an improved inflow of foreign investment, especially the portfolio investment. Foreign investment inflow did not happen as expected. Instead, the massive increase in the MPR served the immediate interests of the bankers who increased their deposits with the CBN, taking advantage of the two hundred basis point increase from 12 per cent in March to 14 per cent in July. It afforded them a second advantage of the re-pricing of their assets and extracting short-term gains, even as that would harm their fundamentals in the medium to long term, such as increasing the incidences of non-performing loans.As it turned out, the pressure persisted, but the CBN had already boxed itself into a corner by the massive MPR hike: it could not move further up nor come down as speculators would have borrowed Naira massively and turned it to demand for the dollar. Matters got really complicated for the CBN by output contraction. As the debate about how to stabilize the naira heated in 2016, the CBN, without interrogation of the demand side for FX, caved in to the very loud voices of the pro-market advocates by devaluing the naira from around N200/$ to N300/$ at the interbank segment hoping that by doing so, the currency would gain some stability. This didn't happen; instead the premium or spread between the interbank rate and the parallel rate widened even as the Bank managed to keep the interbank rate at around N300/$.Proponents of market forces blamed the CBN for not acting on time, and for them the impact of the 'ineptitude' has become cancerous and never healing. The problem wasn't just that the CBN delayed action - devaluation per se was simply not the correct remedy in the face of a fraudulent manipulation of the demand for FX. In this mess, the CBN further got itself hung by trying to operate a discretionary forex policy, which was good in intentions but impossible to implement in a market environment that was lacking both in discipline and integrity. The CBN it seemed at the time, appeared driven by interests both from within and outside it could not extricate itself from, pushed for the 'expert opinion' that the ultimate solution to the FX troubles laid squarely with the market forces of demand and supply. In this highly lucrative business of 'making money out of money', bankers and speculators fell over themselves as the Naira slid. Banks in Nigeria make more money from FX transactions than any other single source. Some of the banks indeed make more profits from FX dealings than all other sources combined, particularly in periods of exchange rate instability such as we are currently in. They simply take undue advantage of the FX crisis and without any qualms even directly engage in outright sabotage of policy to make cheap monies which their owners benefit to the detriment of society.The CBN appears to have, in its recent measures, taken the view that we do not need to take the market forces of demand and supply as GIVEN. The reason being that what manifests as 'demand and supply' in most settings including ours, often emanate from organised manipulation of the market by a few selfish and unpatriotic expert voices for their gain.As it appears this time around, the CBN has decided to become smarter than the market manipulators, by putting on its cap of authority to look beneath the market forces. The Bank has not only taken advantage of the improved supply of FX for which it has little control over, but has also interrogated the demand side of the FX equation.Immediately beneath the demand side is a pile of 'fake' demands for the green back. The hands of banks are up in the air in suggestive innocence as to who is funding the fake demand. Determined to stem the tide of embarrassment and rescue the Naira, the CBN has moved to pin down the demand for the dollar and regain oversight on payments for medicals, school fees and travels which used to be the immediate layer of the smoking screen. And marginal fraudsters have taken flight.So, much more than the extra injection of FX liquidity therefore, the determination of the CBN to track the demand for the dollar is what has produced the temporary halt to the decline of the Naira exchange rate. We should never be mistaken, it doesn't matter how much the CBN injects under the manipulated market force of demand, if it is not followed by a DISINTERESTED supervision on the part of the CBN, including extra pressure being put on banks for greater accountability, the manipulators of the FX market will continue to win - they will simply drain the supply of FX and restore the regime of unending depreciation of the Naira. And the war has just begun; they will regroup.The temporary reprieve for the Naira brought about by the new FX policy should not be taken for granted by the CBN as they exist more complex mechanisms for FX manipulation, especially by banks. There are other such manipulations like use of 'in-house' accounts by banks and multiple applications using the same documentation by customers, among other desperate strategies that even with BVN, extra efforts will be required by the CBN to detect them.The CBN should avoid rushing up the exchange rate value of the Naira even with significant improvements in the supply of FX. CBN cannot substitute for fiscal policy which policy effect will be the ultimate driver of the value of the Naira.In the immediate CBN should, through the Ministry of Finance, seek cooperation and collaboration with the Customs and Shipment agents to track and determine the actual or genuine demand for the dollar on a continuous basis. Government should look into the 'dark room' of import duty waivers and how they are administered as part of the strategy to sanitize the FX demand.Prof. Ode Ojowu wrote this piece from Abuja.
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