Ordinarily, the decision by the policy committee of the Central Bank of Nigeria (CBN), at its September meeting, to clamp down on www.abokifx.com, a web portal that aggregates the naira’s exchange rate at the parallel market would have been welcome. Coming on the heels of the apex bank’s decision to excise Bureaux de Change (BDCs) from the domestic foreign exchange supply chain, this looked like a further signal of the CBN’s new resolve to clean up the nation’s foreign exchange market.
And not too soon. Over the last nine months, the naira has lost value against most traded currencies at a worrisome rate. In part, the economy’s struggle to put behind it the debilitating effects of the coronavirus pandemic explains this sorry state. Worse, in an attempt to support oil prices, the Organisation of the Petroleum Exporting Countries (OPEC) imposed on its member states swingeing cuts to their crude oil production. This latter condition has meant that Nigeria has not been able to produce enough of its main crude oil earner to take advantage of the relatively high rates at which crude oil currently sells for at the international markets.
Not surprisingly, therefore, we have seen the balance on the country’s gross external reserves wobble. With the CBN having reversed policies which previously saw foreign portfolio investors throng the nation’s money market in search of the high returns promised them, the apex bank has long since become the sole supplier of foreign exchange to all the windows in that market. And at its current low level, our gross external reserves are not healthy enough to meet trend demand.
With supply shrinking and demand remaining unchanged, the price of any good/service will rise. And the naira is no exception to this rule. Unfortunately, the CBN complicated this even further. By pushing down the cost of domestic borrowing, the central bank may have made it easier for the federal government to service the domestic component of its debt, if not encourage the government to borrow more.
One unintended consequence, though, of this process of fiscal repression is to drive savings out of the formal financial services system. Combine headline inflation at the high rates it’s been for more than two years with low returns on deposits, and you can understand why resource-rich segments of our society are seeking safe haven assets – real estate, cryptocurrencies, and the greenback.
In the end, beyond its other functions as a unit of account and a means of exchange, a currency is entirely worthless if it is not a store of value. The external price of the naira (its exchange rate) and the internal price (the inflation-adjusted rate), as with any other good/service simply capture the state of play of demand and supply for the national currency.
Within this context, PREMIUM TIMES believes that even were www.abokifx.com able to manipulate the price of the naira to its advantage, this would simply be further commentary on the shallowness of the market for foreign exchange in the country. Yet, even this possibility beggars the imagination. In order to move the price of a good/service, a market player must be able either to increase/reduce the supply of the good or service, or increase/reduce the demand for it. The resulting scarcity/glut then either pushes prices up or down. While this newspaper concedes that there may be a short-term need to protect a fledgling market against such manipulation, we do not believe, and the CBN has not done enough to persuade that www.abokifx.com was thus capable of such. Still, were it so capable, or minded to move prices along these lines, the manipulation will still not be a crime. Neither is the domestic market for foreign exchange a fledgling market.
Instead, over the years, it has been the victim of cackhanded policy making, designed not to strengthen the price mechanism, but to indulge the whims and caprices of an overweening regulatory infrastructure.
By its clampdown on www.abokifx.com, the CBN is only remaining faithful to this tradition. Which is why it is a pity that we have to remind the Central Bank of Nigeria that in order for markets to function effectively, there must be a large number of sellers and buyers, none of whom may arbitrarily fix prices, and all of whom may exit and come in at will. And, no less important, there must be a free flow of information.
Up until this point, the CBN has failed to meet any of these criteria in the design of its numerous foreign exchange trading windows. Designed to deliver different prices to different users of FX, the central bank’s multiple windows have failed several tests. Segmented markets with different prices require that goods/services may not trade across the different markets. Arbitrage opportunities, unfortunately, abound. In far shorter supply, however, is the supply of foreign exchange to any of these markets. In a sense, the CBN’s peanut butter is too thinly spread across the many slices of bread on its plate to be of any use. In banning www.abokifx.com, it has further complicated its mandate for maintaining price stability in the economy, by choosing to violate a key requirement of a properly functioning market.
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Yet, the CBN’s actions resonate beyond the narrow confines of the design and implementation of monetary policy. Beyond the effusions of its governor’s discontent against the online platform, the apex bank has yet to provide any persuasive or even coherent evidence of wrongdoing by www.abokifx.com. Nor has it shown a commitment to due process and the legal way of seeking redress to this matter.
PREMIUM TIMES insists that the integrity of freedom of expression – as fundamental to the practice of providers like www.abokifx.com as it is essential to the right of every citizen to have access to the information required to make informed choices – is a non-negotiable requirement for the health of our democracy.
Accordingly, we also are persuaded of the crucial need to end the reign/raid of commercial bankers and their retail mentality on the management of our central banking culture. In essence, a fundamental requirement for nursing the economy out of the doldrums where it currently languishes is a paradigm shift to a sturdier monetary policy management system that takes the broad national economic health as a priority.
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