By Our Reporters
The answer to this headline question depends on the respondent.
As at today, 6 October 2020, the Central Bank of Nigeria will tell you its 379 naira for every dollar. At the importers-exporters window and Nigeria Autonomous Foreign Exchange (Nafex), it’s between 383-6. Western Union will exchange for 380.29, Money Gram for 380.09. But at the currency dealer’s at the bureau de change or at the currency dealer’s by the street corner, it was 455, after reaching almost 480 in August.
Out of all these numbers, which one of them most closely reflects the true value of the naira. The CBN frequently makes the point that the parallel market rates are the realm of speculators, and will point you to the importers-exporters window as the true indicator of the currency ‘s value.
Yet, the fact remains that the vast majority of Nigerians plan and work with the parallel market rates. Indeed, it’s the street market that sets the pace and dictates the tune as far as signaling the direction of the national currency is concerned.
It would appear that increasingly more of those who should be operating with the official exchange rate, are now using the parallel rates, including banks and financial institutions. Cowrywise and PiggyVest are two frontline, licensed fintechs that help their subscribers to engage in savings and investments.
A client to both companies sought recently to make dollar-denominated investments a few weeks ago. He was charged 472 naira to a dollar by Cowrywise for a Nigerian eurbond investment. PiggieVest on its part, quoted an indicative price of 477 the same day. The implication is that banks and other financial institutions are also using the parallel market.
So who uses the official rate? Perhaps, only the well connected. The type former CBN governor Lamido Sanusi was referring to when he said that people who have the right political access could simply work their phones, get dollars at the central bank rate and sell at the parallel market to become billionaires. It would appear that the Buhari regime is intent on breaking records in the minting such lazy billionaires.
There have been times in the past when the parallel market rates and the interbank rates have converged, even stabilizing at a convergence point for long periods. Those were usually when the market was adequately supplied, and there was no undue demand pressure.
A lot appears to depend on the way a crisis is managed. The CBN under Chukwuma Soludo managed the 2008 financial crisis without Nigerians noticing anything was amiss. This was because, whenever foreign portfolio investors rushed for the exit, Soludo allowed the naira to depreciate, ever so slightly.
The result was more naira cash for the government that needed it. Then, done with a light touch, there was very little impact on inflation. The system functioned smoothly and not many people noticed there was a problem.
Under Sanusi, the central bank maintained a three-percent corridor within which the exchange rate could either rise or fall. The regulator intervened by selling dollars or even buying, when necessary, to keep the rate within the desired band.
President Muhammadu Buhari’s first coming in 2015 was at a time of plunging oil prices. Oil being Nigeria’s mainstay, accounting for more than 90 percent of foreign-exchange income, the country’s vulnerabilities were obvious and called for deft management.
But Buhari came proclaiming he didn’t believe in devaluation and didn’t see the need for it. Taking a cue from Buhari, apparently, the CBN under Emefiele refused to act as demand mounted and created distortions. While such political central banking earned Emefiele a second term at the helm at CBN, it has left Nigeria’s foreign-exchange management severely damaged, to the detriment of the economy.
The introduction of the importers-exporters trading window and Nafex was the CBN’s mea culpa, an acknowledgement that, “Yes, I messed up, I’ll try and do better.” But the country was yet to make a full recovery and was counting on improved oil prices to come to the rescue before the coronavirus struck.
The Nigerian Economic Summit Group was essentially calling out Emefiele for sacrificing professionalism for political expediency when it raised a recent alarm about CBN’s unbecoming practices under Emefiele. In particular, it referenced the uneven playing field of multiple exchange rates and their capacity to generate malfeasance.
While the government was able to rebuff World Bank and International Monetary Fund criticisms for its exchange practices since 2016, it’s become more vulnerable with coronavirus. As the country took a lone of $3.4 billion from the IMF and sought additional ones from the World Bank, it pledged to pursue exchange-rate unification.
At the last Monetary Policy Committee briefing on September 22, Emefiele pledged unspecified “bold action” toward unification of the multiple rates. It was an acknowledgement that the current official rates are merely for chest-beating purposes or dispensing of patronage. The promised action is yet to happen, but when it happens, a natural question would be: If now, why not then? Who will answer for the damage already done?