By Charles Ike-Okoh
THUR, JANUARY 5 2017-The Central Bank of Nigeria (CBN) and the foreign exchange market are the most miserable bedfellows. The capitulation of the Naira to most global currencies and the CBN’s struggle to contain what many now regard as the currency management mess has been the only certainty and constant in the foreign exchange market since the beginning of 2016 when falling commodity and crude oil prices combined with disruptions in crude oil production and exports dealt mortal blows to Nigeria’s main foreign exchange earner.
The CBN is still flummoxed as to why the currency refuses to respond positively, having spent tons and tens of billions over recent months in a seemingly Sisyphean (see Sisyphus in Greek mythology) attempt to halt the dive into the abyss.
The real narrative behind the Naira’s ills is likely less Machiavellian and more dismal. Confidence in the economy has badly ebbed as almost all of the economy’s key drivers lose ground, while the CBN and the federal government response remain convoluted and contradictory.
The blowback on the economy has magnified the challenge confronting the apex banking institution, which has sometimes come across as totally confused as it struggles to stem the damage. Economists had expected that the weakening of the Naira daily against other currencies would spur some measured form of exchange rate regime unification across board or some form of rethink that could wipe out some of the questionable exchange rate allocation regime that is meaningless to economic growth or productivity. And despite the barrage of criticism for holding on to the old twisted mechanism of managing the currency, the CBN seems all too happy to find reasons to create additional hangman’s loop for the currency.
So today Nigeria is the only country in the world that has devised eleven different exchange rates for one currency in a single economy- all of these rates for different purposes. They Include:
1- Pilgrims rate – N197/$
2- Customs rate-N285/$
3- Budget rate- N305/$
4- Interbank rate-N315/$
5- International cards rate-N319/$
6- Fuel import rate-N316/$
7- Travelex rate-N345/$
8- Special Funds for Airlines-N355/$
9- Western Union-N375/$
10- Bureau de change (BDC)- N399/$
11- Black market rate- N488/$
The question then remains, how will the Naira appreciate when it is housed in eleven conflicting and parallel markets; for that is what they are, and why would investors considering cross border investments think Nigeria?
The law establishing the CBN vests it with powers to defend the value of the national currency both in terms of its exchange rate with other currencies and in terms of its intrinsic value ensuring that inflation is always minimized. In executing this mandate, the CBN is empowered to act independently by devising appropriate monetary tools and policies which could sometimes be in conflict with the desires of the nation’s political leadership. In effect, the CBN’s single minded pursuit of its mandate should act as a cautionary sign to the government which controls fiscal policies. But the composition of the exchange rate regime today seems to suggest that political interference has overtaken the responsibilities of the CBN and compromised its independence contrary to its enabling legislation.
For instance, why would the CBN set a different exchange rate for Pilgrims? If the federal government feels the need for a different exchange for the Pilgrims then it is its duty to pay for it as a subsidy and it should be budgeted for. But as it stands today, it is more or less a forced-on measure which the National Assembly even, has no say on. In effect, the sale of Nigeria’s foreign exchange earnings to pilgrims at a rate set by fiat is an unconstitutional appropriation of fund without going through the National Assembly.
Like any other scarce resource, the true price of the nation’s dollars is determined by the interplay of demand and supply wherein the clearing or equilibrium price becomes the exchange rate. The CBN does not have the legal rights to dispose of the nation’s foreign exchange asset at any other rate than what is determined by the market. Any rate below the market rate implies a subsidy which is an expenditure that ought to be presented to the National Assembly, be justified and be appropriated accordingly to empower the President to spend. That is transparency and accountability.
By retaining the multiple exchange rates of Naira to the Dollar, the CBN is not only breaching its enabling Act and the constitution but is also fuelling the uncertainties in the national economy that is making it impossible for private investment flows to come Nigeria’s way and hence the continuous daily depreciation of the exchange rate.
The overall effect on the economy is unwholesome with systemic corruption and abuses driving away genuine investments at a time of acute economic recession. It is time for the CBN to act responsibly and the National Assembly needs to review the incipient serial breaches of the laid down constitutional provisions for the management of public funds. This is perhaps the first step in bringing an end to this chaos for the sake of the national economy.
