The Naira has continued its upward swing against the Dollar. The danger in what is going on is that no one knows, except, perhaps, the CBN, what exactly is going on. Volatility is never good for money and the economy. Whoever is dancing yo-yo with the Naira is causing more damage than they can imagine. What the economy needs is stability in the exchange rate. That is what makes economic forecasting possible. This in turn is what economic decisions and transactions are based on. I do not envy credit and investment risk assessors and advisers at this time. They must be in paralysis. The truth is that a major upward swing in the value of the Naira is just as bad as a major fall. The excited public may not know this. I however expect the CBN to know. A credibility challenged Govt will always try to impress rather than do the right thing. I predicted that fiscal pressure would sooner than later derail any monetary policy ideas of Yemi Cardoso, the CBN Governor, which are based on classical economics.
The economy, like everything else, runs on trust and information. For how long is the CBN going to sustain its intervention in the fx market with direct sale of fx to BDCs? Ordinarily, I consider it an anomaly that the CBN should sell fx to BDCs in the first place. However, we have been doing it in this country. Cardoso wanted to stop it. It had, in fact, been stopped under Emefiele. Cardoso only recently all but prohibited the operations of BDCs. All of a sudden, there was a turn around to make direct sale of fx to BDCs the cornerstone of the monetary policy of the Govt. The normal thing would have been to allow private fx to pass through the BDCs while the CBN and the banks deal on official fx. The BDCs would then take their rates from the official market on the supposition that Govt shall continue to have enough to fund the official market at a given rate.
So, what rate is the CBN targeting for the Naira and what is its capacity to sustain its supply at that rate? Where is the source of the fx that it is using for the intervention? How sustainable is it? There is need for this information. What is happening now is that those who have the information are making a huge profit at the expense of the rest of us. They are the ones bringing out their Dollars now because they are acting on information. The know the rate at which they are going to stop and then start buying again. They are making those who do not have the information to lose money. The uniformed are losing now and may lose much more when they are forced into panic to sell below the rate that the Govt is targeting.
Dancing yo-yo with the national currency is economic sabotage.
Published by Chuks Nwachuku
