Nigerians have, become familiar with the irregular cycles of stable supply and intermittent scarcity in the market for various products, ranging from essential commodities, such as sugar, bread and salt to the equally important market for petrol and kerosene. Expectedly, prices of these items spiral whenever there is a supply deficit, while, prices will collapse when supply levels are once again restored. Indeed, in a free market, prices of goods and services faithfully follow this pattern. Curiously, however, the money market in Nigeria is one of the few exceptions, where a commodity (in this case money) which is alleged to be constantly in surplus, becomes increasingly expensive and costs well over 20 percent to borrow!

For some unknown reason, the managers of several AfricanEconomies also remain in denial of the causative link between the ever-sliding rates of their domestic currencies against the dollar and the unceasing, unbridled,deliberate domestic creation of excessive cash surpluses by the respective monetary authorities. In Nigeria, for example, the uninhibited increase and failure to successfully controlexcessive money supply, made the attainment of a stronger Naira exchange rate impossible, even, whenwe “consolidated” best ever foreign reserves of about $60bn with extended imports payments cover.
Consequently, what has become an abiding feature in Nigeria is the constant spectre of deliberately created domestic cash surpluses chasing rations of dollars, controlled by the Central Bank. 

Clearly, wherever products are rationed, an insidious black market will evolveto recycle scarce supplies for resale at higher prices; ultimately the  black market price becomes a product of the extent of supply shortage and the number of ‘distributors’ in the chain before it reaches the final consumer. Clearly, a black market will invariably compromise supply sources and distort market distribution to instigate higher prices and excessive profiteering in the sale of any scarce commodity. 

Similarly, in the context of Nigerian’s foreign exchange market, the inability of our monetary authorities to successfully modulate the balance between Naira and dollar supply, in favor of the Naira, has led to an artificially induced dollar scarcity in a vibrant,government fundedblack market.  Consequently, in consonance with the characteristic feature of higher prices wherever product scarcity exists, it would be an aberration if the black market price of the dollar ever falls below the official or interbank exchange rate. It is not expected that a rational trader would sell any product below its purchase price; similarly, since black market forex dealers do not buy their dollars below the interbank rate, it would be a sure way to bankruptcy if they proceeded to sell their stock of dollars below the cost price.

Nonetheless, such an apparent price aberration, unexpectedly, transpired in the recent past in ourown foreign exchange market!Indeed, barely a week before the Presidential polls, market watchers noted that the black market dollar exchange rate had fallen from above N220=$1 to between N212 -N215=$1; furthermore, between the weekend of the presidential polls and the Easter Holidays, the Naira further strengthened on the black market to below N210, while the official rate remained steady at about N197 = $1.

The real drama, however, came in the last couple of days before the state elections, when the dollar exchange rate in the black market crashed below the official rate to sell, reportedly, for as low as N195=$1! The unexpected appreciation of the Naira in the black market was interpreted in some quarters as an expression of public confidence that Gen Buhari, the President Elect, will ‘make’ the Naira stronger when he assumes power.

The question, however, is whether or not such public sentiments are strong enough to make any black market forex dealer to offload their stock of dollars at prices below purchase price. If not so, what then could have happened?
Well, a fall back to the solid ground of the law of supply and demand may provide us with a plausible answer. Thus, the Naira could only become stronger, if the monetary authorities significantly increased the supply of dollars, while keeping constant or actually also reducing Naira supply and demand. Well, there is no overt  evidence that there was any significant unusual reduction in money supply, during the period in question, although the extended Easter Holidays may have, despite the availability of ATMs, reduced free access for huge movements of Naira for large transactions. So, if stronger Naira exchange rate in the black market was not the result of a significant difference in the Naira supply side of the equation, then we may turn to the dollar supply side for an answer. In otherwords, was there any apparent increase in dollar supply or did the market hoarders of dollars decide to simply offload their holdings below cost price as part of their celebration of Muhammad Buhari’s victory?

There is nothing to suggest that CBN spiked its dollar supply to Bureau de Change during this period; if anything, the CBN has continued to intermittently reduce the amount of forex allocations to BDCs because of supply challenges. Conversely, there were unconfirmed media reports of dollar bounties, which were deployed to attract votes throughout the federation by the political class in the last eight weeks and particularly in the two weeks between the Federal and State elections. Evidently, the compact value of the dollar made it the currency of choice for easy movement for a job that had to be covertly done to enhance thechances of victory at the polls.

The actual value of dollars deployed for this purpose is not known, but it was certainly large enough to temporarily overwhelm subsisting Naira supplies with BDC operators to make the Naira relatively scarce against the dollar. It was consequently no big surprise therefore, that the heavy inflow of dollars into  major black market centres in Lagos, Kano, Ibadan, Port Harcourt, Abuja etc. quickly strengthened the Naira exchange rate below the official N197=$1. Instructively, the stronger Naira exchange rate was not necessarily the product of economic diversification or growth or export as would be expected by some experts.

Nevertheless, the ready availability of a significant Cache of dollars for the election campaigns is probably an indication that CBN’seffort,since 2013,to reduce the menace of bulk importation of dollars,certainly did not succeed.
Clearly, the sale of dollars in the black market below the official interbank rate is probably also reflective of the usual bargain prices accepted for prime quality stolen goods. Thus, if the CBNwas not responsible for the bountiful dollar supply into the black market, then the political class who, presumably must have unleashed the temporary dollar surplus, surely, did not care much about receiving prime market value for the dollars shared, probably because, in the manner of stolen property, they did not have to put in any stressful shift to acquire the dollars they liberally spread amongst their supporters to promote their chances of electoral victory.

Predictably, the dollar surplus was unsustainable and the Naira, now once again exchanges in the black market for over N220=$1. Nonetheless, such dollar surplus will become welcome, as an abiding sustainable feature of the forex market once the CBN stops substitution of fresh Naira allocations for dollar derived revenue.