Doomsday for speculators over naira surprise rebound

BY EMEKA EJERE

Days of intense clampdown on currency dealers by officials of the Economic and Financial Crimes Commission (EFCC), may have started yielding complementary fruit to the nation’s strive at achieving foreign exchange stability.

Checks by Business Hallmark showed that two weeks after the local currency came under severe pressure, the naira rebounded by about 20.8 percent to 710/dollar at the parallel market on Friday in Lagos and Abuja.

The local currency, which fell consistently throughout the previous week against the United States dollar following the announcement by the Federal Government to redesign its higher denominations, had tumbled to an all-time low of 910/dollar at the end of the week.

The Governor of Central Bank of Nigeria (CBN) Godwin Emefiele, had said the planned policy was in line with Sections 19, Subsections a and b of the CBN Act 2007, upon which the Management of the CBN sought and obtained the approval of the President Muhammadu Buhari to redesign, produce, and circulate new series of banknotes at N200, N500, and N1,000 notes.

However, the currency began a rebound against the greenback on Monday (Nov 7), after a week-long clampdown on foreign exchange dealers in Abuja, Lagos, Kano and other major cities by the personnel of the EFCC.

EFCC officials had arrested over 90 Bureau De Change (BDC) operators across major cities in the country over allegations of currency hoarding and aiding politically exposed Nigerians and other criminal elements in money laundering.

The naira which was bought and sold on the streets of Lagos and Abuja between 735/dollar and 745/dollar about two weeks ago began a free fall shortly after the decision of the Federal Government to redesign the local currency.

However, on Monday (Nov.7), the naira rebounded and was bought and sold between 850/dollar and 860/dollar. The local currency gained significantly and steadily on Tuesday and Wednesday, Thursday and closed at 710/dollar on Friday.

Financial analysts and forex dealers attributed the development to market sentiment and the activities of the EFCC personnel. According to them, the clampdown on forex dealers forced several BDCs into hiding, making many politically exposed persons and currency speculators hold back in their demand for the greenback.

However, the President, Association of BDC Operators of Nigeria, Aminu Gwadabe, said market sentiment and the news of the naira redesign drove the market in the past two weeks.

He said the rebound of the naira had made many currency speculators lose millions of naira. According to him, many forex dealers did not know the naira would rebound too soon.

“I can say the surveillance by the EFCC and other factors affected the market. However, I can say that some global factors also affected the market aside from the local issues in Nigeria. Don’t forget that countries like Saudi Arabia, Russia and China are taking some steps that are currently affecting the dominance of the dollar.

“But locally, I can say certain sentiments made the naira rebound and these have led many speculators to lose millions of naira. Many took a position at N800/dollar and now they are worried the currency is now N720/dollar. This was why there was some resistance in the market today with many BDCs not willing to sell their dollar at a lower amount. People who kept the greenback are now bringing it out because of certain market sentiments.”

Also speaking on the development, a Financial Inclusion/Wealth Management expert, Mr. Idakolo Gbolade, said the CBN should inject more dollars into the system to sustain the latest naira’s rise.

He noted that the government should enact a transparency policy to encourage large cash deposits without harassment, provided the source is legitimate.

“This is a welcome development. However, it took the combined efforts of the Economic and Financial Crime Commission, EFCC and other law enforcement agencies to raid currency speculators and Bureau De Change operators running these schemes to achieve the sanity experienced so far.

“I believe that if the Central Bank of Nigeria can inject more dollars to the system, it will help significantly. We must also ensure that those caught in these currency manipulation schemes are prosecuted accordingly.

“The CBN can also pursue a policy of instituting transparency in the cash deposit due to the redesigning of the naira by ensuring that those that lodged large sums into accounts are not unduly harassed if the source of funds are proven to be legitimate or they are just those in the habit of hoarding naira. The measures will encourage the hoarders to jettison the quest for exchanging naira for dollars”, he said.

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, noted that there had been a decline in the rush for dollars after the announcement of the naira redesign, pointing out that this decline might have led to the rebound of the naira.

“It is a very volatile situation. The immediate reaction to that pronouncement triggered some rush to convert to dollars. That round of reaction is already beginning to die down. That’s a possible factor. Once that initial rush has subsided, it is possible that the pressure on the dollar reduced.”

According to him, the recent rumour about some expiring dollar bills might have contributed to the rebound of the naira. He said there were still a lot of uncertainties and the situation was still volatile.

Yusuf, who does not believe that the recent arrest of some BDC operators may have added to the rebound, noted that there was a possibility that a number of speculators were cautious and aware of the volatile situation, which might have prevented them from any losses.

Traders count losses

Speaking with our correspondents on Thursday, a BDC operator at Ojodu Berger, Lagos, Bello Abdullahi, noted that he bought the local currency for 715/dollar and sold it for 720/dollar.

He said several BDCs had gone into hiding following the EFCC clampdown, adding that the demand for the greenback had dropped significantly.

“Many of our people have lost hundreds of millions of naira due to the fall. Many of them bought the dollar when it was over N800. Now the U.S currency has started falling and they are losing several millions. I personally lost millions of naira.”

Another BDC operator at the Lagos airport, Seriki Muhammed, said he also bought the greenback for 717/dollar and sold it for 721/dollar on Tuesday. According to Mohammed, some BDCs were licking their wounds because they had bought over $500,000 at about 820/dollar in anticipation of further loss in naira value.

“We are in a big trouble unless the dollar rises again. Many of our people bought so much dollar, hoping it would gain further,” he told one of our correspondents.

Meanwhile, indications have emerged that politicians who stashed billions of naira outside the banking system to prosecute the 2023 general election have moved against the planned naira redesign,

These politicians, sources say, have mobilised the National Assembly to pass a resolution against the policy as several lawmakers may have stockpiled cash for the 2023 general election.

It is estimated that about 84 per cent of the N12.73 trillion in circulation is outside the banking system, mainly in the hands of politicians, kidnappers, traders and criminal elements, most of whom do not bank their funds but are involved in money laundering and currency round-tripping, using the black market.