Emefiele’s Star rises

Naira appreciates 18 per cent in 3 days
Currency speculators lose billions
Okey Onyenweaku
In what was like a daring scene from a wall street movie, Nigeria’s Central Bank (CBN) last week took on the nation’s leading currency mafia and sent them scurrying into hiding as many of them lost hundreds of millions of naira as the nation’s chief currency regulator, unexpectedly but strategically swamped the market with United States dollars. The move which started with the hard-hitting sale of USD$500million saw currency traders scuttling to sell off previously hoarded stacks of dollars which set the tone for a grand showdown between the CBN and speculators, but not before the CBN went ahead with the further sale of an additional USD$100million, an event that made currency hoarders squirm in pain. In three intense days of currency trading the naira to dollar exchange rate shifted from N520/$1 to N450/$1, a 72-hour currency appreciation of 18 per cent.
At no other time in the nation’s currency management history has speculation by currency traders become such a potent force for economic damage. For the better part of the last quarter of 2016 the naira to dollar exchange rate rose as if it were on an escalator, the naira lost 11 per cent of its value with a fortnight and currency traders continued to force the issue as they pushed the naira to dollar rate up regardless of rising crude oil prices, growing external reserves and rising sales volume. Says Tayo Omosewa, an investment banker and head corporate finance Alterious Capital, ‘currency traders had locked themselves into a one-way trading bet in which they wagered against the naira, everybody expected the naira to lose value against the dollar and, therefore, traders started hoarding dollars in moves that created self-fulfilling prophecies, but with the CBN’s recent intervention that strategy has been burnt along with its attendant bubble’.
The sudden reversal of the local currency, the Naira from a protracted weak position to a stronger one has brought some measure of relief to several economic segments. An air of optimism has been restored and manufactures and importers alike have begun to heave sighs of relief.
Traders and buyers of food and other services have also joined to celebrate the strengthening of the Naira against other currencies, especially the dollar, British pound and Euro.
Interestingly, the Naira has been on a somersault since 2014 and has not stopped plunging from N197/$1 to the recent N520/$1
Speculators, money launderers have always fought the Central Bank of Nigeria on currency stability. This became aggravated since the Price of Crude plunged sharply in 2014 as many persons are taking flight to safety. This has given the Central Bank of Nigeria night mares as it grapples with the challenge without success.
However, with the recent measure, the apex bank appears to be getting a handle on the challenge.
Money launderers and speculators have had their fingers burned by the sudden appreciation of the naira from N520/$1 last week to N425 this week. And the appreciation is expected to continue.
The Central Governor, Mr. Godwin Emefiele, who before now has been called names for the rapid depreciation of the naira, is suddenly a hero of some sorts.
Emefiele who had warned speculators in 2014 against getting their fingers burnt for engaging in parallel currency market trading and is now probably laughing contentedly, saying ‘I told you so’.
CBN has tactically deployed increasingly effective measures to temper the extreme actions of currency traders, nudging the local currency to a quick recovery.
In very quick succession, Emefiele has pumped green backs into the currency market to reduce foreign currency scarcity which has been the bane of the economy.

The naira’s sudden appreciation has been attributed by the oversight bank to a number of fresh measures to cool speculators enthusiasm to play the market, “the CBN has done its intelligence work and we came to the realisation that much of what was driving the demand on the BDCs and the parallel market was speculation.
“We reasoned that since there is a lot of pressure on the two segments from people seeking to buy foreign currencies for BTA, tuition and medical, that if we successfully address that, the pressure will come down.

“Also, before now, the level of our reserves was not enough to make us comfortable to really do the kind of intervention that is required.
“We decided to do so now because we are a bit more comfortable with our level of reserve.”, The Acting Director, Corporate Communications of the CBN, Mr Isaac Okoroafor has said.
Okoroafor noted that since the new forex policy, the CBN has intervened with about $591m which had led to the Naira gaining strength.
Determined to sustain its defense of the local currency, the CBN on Thursday February, 25, 2017 sold $221,371,218.04 to banks in its second special wholesale intervention since the new foreign exchange (FX) policy actions were announced a week ago.
A breakdown of the amount sold by the CBN showed that it auctioned $162,850,000 to 10 banks in a transaction with 30 days tenor, while six banks participated in a separate auction with 60 days tenor in which $58,521,217.04 was sold.
The Central Bank of Nigeria on Monday February 28, 2017 increased the liquidity in the foreign exchange market again by releasing additional $180m for settlement of various transactions. While the sum of $100m was released into the wholesale forwards segment of the market, additional $80m was provided to banks specifically for the settlement of dollar demands for school fees, medicals and Personal Travel Allowance, among others.
The signs that the CBN was going to try to boost the dollar supply in the economy and deal a bad blow on speculators was the it pegged the Naira exchange rate for payment of school fees (strictly universities) abroad and Personal Travel Allowance (PTA) at N375 to the dollar.
Since then, the naira has been gaining strength and stability. Nevertheless, the CBN has also vowed to defend the naira going forward.
Emefiele had in November 2016, enthused that CBN interventions had saved the economy from collapse.
“If policies like recapitalisation and the Treasury Single Account had not been created, you wouldn’t have imagined what our banks would have become. For instance, prior to recapitulation, the total number of commercial banks could not match the asset base of a single South African bank. But this is not the case anymore as our banks are now robust.
“The same goes for TSA which removed sharp practices in some banks as instances arose where you had banks using government money lodged with them to buy government bonds. In other words, government was buying bonds back with their own cash through these banks which basically gamed the system”, Emefiele had stated

In fact, JP Morgan Chase& Co. and Renaissance Capital had noted the rally, sparked by increased sales of foreign exchange forwards and looser capital controls, is contingent on the central bank continuing to sell down its reserves. And until it devalues or makes a clear switch to a free-floating currency, Africa’s most-populous country will struggle to lure back foreign investors.
Prior to recent development the fate of the naira had been beclouded by uncertainty as government/ CBN has grappled with various experimental policies to stem the tide. This had resulted into multiple exchange rates as different categories of persons get the dollar at different rates.
For instance, analysts note that the apex bank sells dollar to people going for pilgrimage at N197, while it sells at N285/$ to the petroleum agency, PPPRA , this contrasts with the forward 2017 budget average of N305/$. Similarly, the BDC’s $380/$, Travelex N345/$, Special Funds Airlines N355/$, Western Union N375/$, and Black market 500/$
However, there is still significant discomfort in the horizon as to the sustainability of the stability of the naira. These are the concerns of stakeholders in Nigeria.
Many analysts are not sure of how the naira, which has lost over 60 per cent of its value since the Central Bank of Nigeria (CBN) removed its N197 peg in June 2016, would fare against the dollar this year.

Managing Director, Cowry Securities limited, Mr. Johnson Chukwu, told Business Hallmark in a telephone interview that anybody who deserves blame when things are wrong deserves praises when he has done well. ‘’If people can blame Emefiele, they should also be able to praise him’’, he said.
Mr. Chukwu said the sustainability of the recent appreciation of the naira needed the support of the fiscal authorities. He explained that the fiscal authorities must manage the stability in the Niger Delta to increase the inflow of foreign exchange into the country.
Chukwu notes that comprehensive management of foreign exchange appears to be beyond the CBN.
‘’The monetary authorities can only use high interest rate to attract investors but there is a limit to how well that strategy can work in Nigeria. Sustainability of a stable foreign exchange depends on how these activities work together to keep substantial liquidity in the system’’, he said.
Mr Godwin Emefiele, CBN Governor last week reiterated government resolve to continue defending the naira, saying it is not in a hurry to completely float the country’s currency.
Dr Boniface Chizea, Managing Director, BIC Consultancy Services Limited, argued that it would be difficult to harmonize the country’s forex market, because of the structure of the Nigerian economy.
“It is not the best, but sometimes, you have to live with it. All you have to do is to put in place a tracking procedure, because if the gap is wide, there is a temptation to round-trip,” the economist posited.
However, other analysts have expressed fear that though the current moves of the CBN may be yielding results, but they have reservations over its sustainability. This view has been hinged on the how the Nigerian economy which is still in recession responds to the multiple challenges plaguing it.
So far, the CBN has dipped into country’s reserves which has just hit about N28billion to defend the naira. The price of crude which is the major revenue earner of the nation is unstable. Therefore, market analysts note that if the price of oil falls from about $55 per barrel as at Thursday March 2, 2017 to anything close to $42.5 per barrel, the country’s accrued revenues will drop and affect external reserves and the propensity to save.
This would suggest that the CBN may find it difficult to close the gap between interbank and parallel market rates for now, but on the balance of evidence Nigeria’s financial regulator is generally moving policy in the right direction, as Governor Emefiele has been generally acknowledged to have woken up from a perceived slumber.