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					                             CBN’S COMPLICITY IN NAIRA CRASH

                                              BY: LES LEBA
  ,,, 234(0)8052201997

XX“LCCI blames CBN over depreciating Naira”XX is the lead title on pg 17 of the Business Guardian
of 19/1/2009. The about 100 year old Lagos Chamber of Commerce and Industry had in recent years
published quarterly evaluations of the economy and reiterated its pedantic demands for improved power
supply and other supportive infrastructure, but it had rarely laid the blames for a failed economy at the
doorstep of any major government agency. So, Otunba Kayode Onafowokan‟s current indictment of the
Central Bank (CBN) for XX“the drastic drop in the value of the naira”XX shows a new face of this
sturdy business group!

In a recent release, the Chamber‟s Chairman blamed the CBN XX“for acting too late in addressing the
sliding value of the naira, despite clear indication of such”.XX The Chamber noted that XX“through
acts of omission or commission, the CBN created an environment which spurred speculative activities
leading naturally to bloated demand for foreign exchange and an inevitable drastic depreciation in the
exchange rate”.XX The Chamber believes that the situation could have been better managed and
maintained that the XX“various pronouncements and actions of the CBN did not give a clear policy
direction and are sometimes inconsistent; a disposition which significantly fueled speculative activities
leading to unbearable demand pressure on the foreign exchange”.XX

What the Chamber boss is saying here is that, it is not so difficult to maintain a more efficient market if
there is a little bit of sincerity on the part of our economic experts in the CBN! Thus, the insincerity of
the CBN has made a simple job very difficult and the chamber further noted that XX“it would seem that
the top officials of the CBN do not appreciate the gravity and severity of the damage its actions (or
inactions) have done to the investment environment”XX. All the above seem to be straight out of an
article in our regular column, but believe it or not, these are the views of the real sector, which are
obviously at variance with the standing ovation for Soludo‟s presentation to the National Assembly on
the Strategic and deliberate need to devalue the naira only four weeks ago!

Truth, they say, has no hiding place! The Chamber maintained, as we have always done in this column,
that XX“…the core mandate of the CBN is to ensure price stability. The naira exchange rate is a very
critical price in the Nigerian economy, because of the import dependent character of our economy”.XX
I concur!! However, what is not obvious, even to the business moguls of the Chamber is that the naira‟s
fall and a dislocated economy had been plotted and dedicatedly implemented from as far back as
February 2005 by the Central Bank! The opportunity for the recent damaging blow was enacted under
the cover of the global meltdown, but in its hurry to administer the blow, the CBN unwittingly left its
backside bare!

In my articles of 14/2/2005 and 21/02/05 titled “THE N.E.E.D.S. PROGRAMME AND MONETARY
POLICY CIRCULAR NO. 37 (1&2)”, we alerted the nation on the plot by the CBN to wage a war on
the rate of the naira, and emasculate the economy with its policies! The failure of the economy in spite
of over four years of embarrassingly abundant income is a testimony of the veracity of our
prognostication! In the third quarter of 2006, the CBN celebrated its „Liberalization of the foreign
exchange market‟ and extolled the virtue of convergence of black market and official rates of exchange!

At the 8th Annual CBN Seminar for Finance Correspondents and Business Editors in Kaduna in August
2006, Mrs. Omolara Akanji, CBN Director “Trade & Exchange” boasted that XX“the apparent
convergence signalled an effective foreign exchange management and efficient foreign exchange
market”.XX The CBN Director confirmed that the convergence was brought about by its recent
liberalization of the foreign exchange market, where the banks are now allowed to purchase foreign
exchange based on their speculative estimates of their customers‟ foreign exchange demands in place of
the old Dutch Auction System (DAS) where the banks could only buy forex from the CBN based on
expressed demands and prior cash commitment of their customers as is the case in civilized economies!

As a further demonstration of liberalization, the CBN at that time also XXremoved the documentary
controlsXX that inhibited patrons of the black market from accessing relatively cheaper, officially
sourced dollars from the commercial banks. In anticipation of the upsurge in the demand for official
foreign exchange, the CBN also rose up to the challenge by allocating $400,000 to each bureau de
change in the country, notwithstanding the overall threat of capital flight and the reality that the major
patrons of bureaus de change were smugglers and looters of the treasury! Our article of 9/4/2006 titled
“PSEUDO LIBERALISATION OF FOREX MARKET” was a response to CBN‟s jiggery-pokery on
the forex market! In that article, we noted that XX“What is apparent from all the above is that the
CBN appears overwhelmed by its new found seemingly inexhaustible pool of dollars as a result of
the fortuitous exceptional rise in crude oil prices in the last 2-3 years. Indeed, the euphoria of a
huge dollar bank balance may have induced CBN‟s policy of liberalization of the foreign exchange
market, which regrettably has translated in practice to an irreverent dispersal of our foreign
exchange earnings with the nebulous objective of convergence of the rates in general markets.

Meanwhile, a truly liberalized market is one in which there are many sellers and many buyers! A
situation where only one source supplies over 80% of a commodity in any market, would most
certainly be expressed as a monopoly. Now, in all the several official foreign exchange markets
conducted in Nigeria, including the currently surprisingly acclaimed WDAS, the CBN sells over
80% of the foreign exchange in the market through one framework or the other, which does not
change the basic structure of the market.”XX

The expected consequent boom of bureau de change (BDC) business prompted an article by Assistant
Business Editor, Babatunde Komolae, titled “WHAT A LIBERALISING POLICY” (Vanguard,
9/4/2007) in praise of CBN‟s „wisdom‟! In response, we castigated Komolafe‟s shallow evaluation, and
noted instead in our own article with the same title “WHAT A LIBERALISING POLICY” 30/4/2007
that XX“As if in a prodigal desperation to spend our dollar reserves rather than apply such
to the benefit of the real sector, the CBN has given away at possibly less than 5% interest
rate, $7bn to 14 Nigerian banks to learn about international financing, and allowed
$20,000 to every Nigerian for basic travel allowance; (meanwhile, less than 1% of
Nigerians earn $20,000 or N2,600,000 per annum!). As if to further rub salt into our
wounds, in spite of our existing ample idle reserves, our own CBN leads us down the path
of unnecessary local debt accumulation by going back to borrow funds at over 15% from
the same banks to whom they had „donated‟ our scarce dollar revenue. The net loser in all
these is the core 98% or so Nigerians, who cannot dream of traveling abroad for holiday or
medical attention or buy a house or buy shares, or pay utility bills or life assurance abroad!
Indeed, such an obtuse forex policy only favours the rich and the economic miscreants in
our midst. It is certainly a simpleton‟s way to liberalize the forex market.”XX

In spite of our humble advice, the CBN marched on aggressively as a soldier without ammunition into
battle, and today, the chickens have come home to roost, and the CBN has announced its return to the
system of accountability for forex usage that it had glibly discarded against better advice in 2006.
According to reports, CBN would now cease further sales of forex to BDCs, belatedly admitting that it
is not the CBN‟s role to fund BDCs. In addition, banks are now to purchase forex only for their
customers with appropriate cash cover, automatically disqualifying the speculative freedom granted in

But, the question still remains whether the CBN‟s turnaround or born-again posturing is truly altruistic.
Unfortunately, the picture of forex sales to banks in 2008 as published in Vanguard Business Edition of
12/1/09 – pg A3 is worrisome! In the concluding paragraph of the lead story on that page, we discover
that the CBN sold just $501million between January – March, and sold $1.519bn between April – June,
while $2.673bn were sold from July – September, making a total of about $4.7bn for the first nine
months of 2008; i.e. an average of about $500m/month! However, by October, there were already
indications that Nigeria‟s revenue from crude would dip significantly and Soludo‟s affirmation that the
naira crash was deliberate is a confirmation that the matter must have been extensively discussed at the
Federal Executive level for approval; otherwise, the sudden surge in demand for dollar in October and
November is inexplicable after Soludo‟s assurances that our economy was well-insulated from the
global meltdown! Ultimately, the CBN sold $3.365bn in October alone, and $3.232bn in November,
making a total of $7.068bn in those XXtwoXX months compared with $4.7bn in the earlier XXnineXX

In a dramatic twist, the CBN blamed the sudden demand surge on speculation, and threatened to deal
with round-trippers, but it was silent on whether its hand was forced to open the treasury to meet the
demand of the speculators in October and November 2008, since the dollars demanded by the banks in
both months was out of sync with the trend! Indeed, in spite of the abnormal demand, the CBN
continued to fund BDCs until late November 2008!

A cursory examination of monetary trends will also show that demand for forex often peaks after the
disbursement of monthly allocations to the three tiers of government. As every banker would admit, the
cash inflow provides a deposit cover which enables the banks to leverage significantly for credit
expansion. In other words, the greater the dollar available for sharing each month, the greater the
quantum size of naira paid into banks and the greater the credit capacity available to the banks and
ultimately, the greater the demand for dollars and the greater the downward pressure on the rate of the
naira. Thus, the CBN is the real source of the funds and invariably the instigator of the recent crash of
the naira and the CBN Governor may well be described as the godfather of forex speculation, especially
since, in spite of his recognition of pervasive round-tripping in the banks, no one has so far been
seriously penalized! In any event, the indictment for money laundering confirmed by U.S. prosecutors
and the penalty of US$15bn paid by UBA for the illegal warehousing of the CBN Governor‟s African
Finance Corporation $450m may also have made CBN‟s war against domestic round-tripping a farce!


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