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A report on Page 33 of the Punch Newspaper edition of June 21st 2019 has indicated that “between April 2018 and March 2019, the Central Bank of Nigeria injected over $42.3bn into the foreign exchange market to ensure liquidity in that segment of the economy. In the same report, Isaac Okorafor, CBN’s Director of Corporate Communications also attributed the relative stability, in the forex market, largely to CBN’s continued intervention; furthermore, according to Okorafor, private international money transfers, estimated at over $20bn annually, plus the Naira swap arrangement with the Chinese Yuan, have also contributed to exchange rate stability. 

Conversely, however, Page 35 of the same Punch Newspaper edition, also carried another story titled “DMO records 655 per cent over-subscription at Treasury bills auction;” that report confirmed that the DMO had rolled over a total of N17.61bn at its Treasury bills auction on Wednesday 19th June 2019, when CBN borrowed at rates ranging between 9.6 and 12.2 per cent, respectively, for the Treasury bills (loans) acquired by the Apex bank. The economic reality is that, the 655 per cent over-subscription is indicative of a Naira liquidity excess/credit pool above N111.35bn in the money market. It is inexplicable that the related Treasury bills rates were as high as between 9-12 per cent, when in fact, there is an undeniable Naira surfeit in the system; surely tomatoes do not cost more when the market has an excess supply of tomatoes!

Instructively, nonetheless, with the subsisting 22.5 per cent Cash Reserve Requirement for banks, the N111.35bn liquidity surplus indicated above will ultimately translate to an oppressive Naira excess of over N400bn, which unfortunately will propel higher rates of inflation and increase cost of loans, which will in turn jeopardize consumer demand, economic growth and job opportunities nationwide! Regrettably, the Trillions of Naira CBN borrows annually, at such atrocious rates, to remove inflationary Naira surplus values from the system are deliberately simply sterilized from use to reduce liberal credit expansion from banks to customers. Worse still, with the suffocating perennial burden of excess Naira liquidity, the Naira’s embattled fate becomes sealed thereafter, in CBN’s bi-weekly auctions of between $200-$300m to fix the N/$ exchange rate; expectedly, the suffocating subsisting Naira liquidity surplus will always overwhelm the small dollar rations, simultaneously, auctioned by the same CBN and will therefore always threaten the Naira rate. 

Indeed, a cursory examination of CBN’s forex reserves, clearly indicates that Naira exchange rate bears minimal correlation with the size of “CBN’s External Reserves;” this relationship is indicative that rising reserves do not necessarily translate to stronger Naira rates! For example, in January 2012, Government’s Reserves, was over $34bn, while Naira exchanged for about N155/$1, but later slumped unexpectedly, to N161=$1, even when forex reserves rose well above $43bn! Similarly, in 2013, External Reserves fluctuated between $45bn in January to $42bn by December, yet the Naira rate remained sticky, between N153-N162/$1. Furthermore, the Naira rate actually weakened to N170-N199, in 2014, even when external reserves still trended favourably between $44bn-$45bn. Curiously, however, in 2016 when External Reserves dipped below $30bn, the Naira which, traded around N197=$1 in January, was officially devalued before December by almost 50 per cent to N305-N360=$1, while the economy was, officially also confirmed to be in recession. 

In retrospect, however, Naira rate, was as strong as N84=$1 between 1995-98, even when total reserve was a very modest $4bn! Similarly, between 1972-1984, official forex reserves was barely $390.71m but one Naira remarkably exchanged for almost $2!  Instructively, External Reserves have climbed again above $40bn since 2017, but the Naira rate, is inexplicably stuck between N305-N360=$1 despite the ban of 41 import items from official forex sales. The salient question therefore is, if the Naira/dollar rate rose well above N300=$1, because reserves dropped below $30bn in 2015, why then, has Naira rate remained static between N305-N360, even after reserves have climbed, once again and remains stable between $40bn-$47bn, with current crude price nearer $70/barrel, and possibly providing over 20 months capacity to pay for our imports, and defend the Naira! 

It is sadly becoming obvious that CBN’s weekly strategy of bombarding the forex market with dollar reserves has, expectedly failed to stop Naira depreciation, even when dollar revenue derived from higher crude oil prices and autonomous sources significantly increased beyond, the reviewed 2018 budget benchmark of US$50.5/barrel.  Although CBN’s Communications Director, Isaac Okorafor, suggested exchange rate stability as a priority objective, instructively however, any rapid depletion of reserves would perfunctorily precipitate market panic and induce further reserve erosion, which could, ultimately, compel another huge Naira devaluation below N500=$1. The social and economic impact of such devaluation will inevitably fast track more Nigerians into poverty, and sustain our Nation’s odious title as the reigning “World Poverty Capital!  It is rather macabre that, the CBN willfully depletes it stock of reserves to allegedly defend the Naira, through its regular, weekly auctions of hundreds of millions of dollars, to all and sundry including the High Street Bureau-de-Change at face value, while Government simultaneously, conversely, humbly seeks modest dollar loans and pays upto 8 per cent interest on such debts, despite CBN’s heavy cache of ‘idle’ dollars! 

Furthermore, in November 2018, the present administration inexplicably, obtained a fresh $3bn foreign loan to compound the existing $10bn that it had previously borrowed at over 7 per cent rate of interest, even though CBN carelessly broods over a rich nest of over $40bn reserves, from which, it regularly auctions dollar rations, at par value, to all and sundry, in order to, allegedly, stabilize and determine the Naira exchange rate! The DMO has for example, lately (June 2019) also confirmed its intention to borrow $2.7bn from foreign sources in 2019. Nigerians must question why the loan required could not be obtained directly from CBN’s caché of almost $50bn, while CBN unilaterally auctions dollar rations against the Naira and freely distributes dollars ‘sans’ interest to even Bureau-De-Change, who probably provide the major source of foreign exchange for those smuggled goods which continue to threaten Nigeria’s economy. 

The title “The Wrong Way to Defend the Naira” (see was first published in April 2011 in Vanguard Newspaper, to reflect the subsisting contradiction of increasing External reserves even when Naira exchange rate, inexplicably, conversely, remains sticky and under siege, while dollar reserves, fortuitously, also exceed budget expectations. Notably, the fears of economic contraction, increasing joblessness and deepening poverty expressed in that article have all become oppressively apparent in recent years. A brief summary of that article follows hereafter. Please read on. In practice, the Naira exchange rate is actually more a function of Excess Naira liquidity, in a strictly regulated market, in which small rations of dollars are intermittently auctioned by CBN. Regrettably, such a market model will only spell disaster for growth and deepen poverty for our people. Incidentally, the CBN Governor, Lamido Sanusi, in his acceptance Speech as Silverbird’s 2010 Man of the Year, clearly referred to IMF’s recommendation for a devalued Naira as one of such ‘bad’ or anti-Nigeria recommendations.  Consequently, Sanusi rightly refused to play along with IMF, as he saw no observable benefits in a weaker Naira, which would “trigger higher industrial production costs, fuel inflation, increase fuel prices and subsidies and also increase our national debt burden. 

Undoubtedly, Sanusi’s argument with regard to the critical need for a stable Naira value is certainly very plausible; but the real question is, can the CBN Governor keep Naira below N155/$1 within the context of the present framework that explodes Naira supply whenever distributable dollar revenue, in monthly allocations to Government is substituted with Naira?  This column has consistently maintained that Naira substitution for dollar revenue is the poison in our economy, as it engenders a system that cripples our economy and oppresses our people whenever we earn increasing dollar revenue; a veritable paradox if there ever was one! 

POSTSCRIPT 2019: The adoption of dollar certificates for allocation of dollar revenue, clearly still remains the most practical solution to the Naira’s perennially embattled state! 


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