Is CBN’s Emefiele losing sleep over naira’s travails?

By ‘Femi Asu

These are certainly not the best of times for the Central Bank of Nigeria. Its Governor, Mr Godwin Emefiele, is probably facing his biggest challenge in over seven years of being in charge of the management of the country’s currency and monetary policy. It is not unlikely that he is losing sleep over the travails of the naira, as several calls have been made for his sack.

The tumbling of the naira to a record low of 570 against the dollar last week at the parallel market put the CBN on the spot. Emefiele, at a press briefing after the Monetary Policy Committee meeting, talked tough on “exchange rate manipulation” allegedly by abokiFX, a platform that provides data on parallel market rates.

He said the CBN had in the last two and a half years been studying the activities of abokiFX, whose founder he accused of “milking the system through speculative activities on the naira”.

“For those who think they are smart and they want to continue to sabotage the efforts of the central bank in running this economy for the good of Nigerians and this government, we will make life very difficult for you. Your time has come,” he exclaimed in disgust.

Emefiele even went ahead to challenge the website’s founder and his would-be supporters to a “fight”. It goes without saying that the matter was really agitating the country’s top central banker.

Nearly two months ago, the apex bank ruffled the feathers of Bureau de Change operators – and their backers to boot – by stopping the weekly sale of forex to them. The CBN governor said the BDCs had turned themselves into “agents that facilitate graft and corrupt activities of people who seek illicit fund flow and money laundering in Nigeria”.

The stoppage of dollar sales to the BDCs was widely welcomed, with analysts at Financial Derivatives Company, led by foremost economist Bismarck Rewane, describing it as a disruption of “one of the juiciest gravy trains in the Nigerian economic racket”.

Analysts at CSL Stockbrokers Limited said the CBN action seemed justified but described the timing as inopportune, given that the summer period (June-August) is characterised by pent-up forex demand to meet personal travels and educational needs.

“Though the apex bank redirected the FX supply previously meant for the BDCs to commercial banks, restrictions on FX demand limit placed by the banks on customers have not changed and stringent requirements to access FX from the banks can be discouraging for some. As such, customers have resorted to getting FX from the parallel market, pushing exchange rates to new levels,” they added.

Considering how Emefiele spoke against the BDCs at the last two meetings of the MPC, one could make so bold as to say the stoppage of dollar sales to them is here to stay. Last week, he said there was no going back to “this type of practice that tended to promote illegal activities”.

But if its past action is anything to go by, the central bank may succumb to mounting pressure to resume the sale of forex to the BDCs. In 2016, the CBN discontinued the forex sale to them amid concern that they had become a conduit for illicit trade and financial flows. But it reversed the ban in 2017.

With the latest clampdown on “foreign exchange manipulation and speculation”, the CBN left no one in doubt last week that the country was still grappling with a severe dollar scarcity.

By forcing abokiFX to stop publishing the parallel market rates, Emefiele has been able to pull the plug on the widespread reportage of currency movements in a market that is still widely used. Many journalists often relied on the platform, and the frequent reports about naira’s fall apparently embarrassed the CBN.

While it is true that news about exchange rate affects market sentiment, I believe the single most important issue that needs to be addressed is forex scarcity – it is the major driver of the currency movements in the parallel market.

The exchange rate is the most important price in any economy as it affects all other prices, and the media has a responsibility to inform the public about how the naira is faring in the parallel market, which is being used by many businesses and individuals.

With the naira reported to have continued its decline this week, Emefiele sure has his work cut out for him to wriggle his way out of this storm.

● ‘Femi Asu is a business journalist; this article was originally posted on his Facebook account