The naira’s marvellous climb 

The Central Bank of Nigeria (CBN) has shocked the financial world with the record performance of the naira in the last two months.

Some analysts in the European Union (EU) had predicted that the naira would exchange at N2,000 to the dollar before the end of 2024.

The naira shocked the prophets of doom and emerged the world’s best performing currency in April. That is the verdict of Goldman Sach, a leading global investment banking firm.

The naira appreciated from a record low of N1,865 to the dollar in February and peaked at N1,120 at the close of business yesterday.

The naira has never recorded such sustained gains in the last 37 years. Since former military president Ibrahim Babangida introduced the second-tier foreign exchange market (SFEM) that plunged the exchange rate of the naira from N1 to N7.20 to the dollar in September 1986 the naira had persistently depreciated without recovering in a sustained pattern as it has done in the last three weeks.

The recent performance of the naira is not a miracle. The CBN had at last done what it failed to do in the last eight years.

The catastrophic performance of the naira in the last six months was conjured by a cataclysmic supply deficit, forex hoarding and speculative biddings which rocked the faith of stakeholders both within and outside the economy. 

Because of the tragic supply deficit the CBN had trapped a record $700 million in foreign airlines ticket sales proceeds. The naira started a laborious climb out of the abyss when CBN paid a huge chunk of the trapped ticket sales proceeds and other outstanding forex bills.

The supply deficit crisis was worsened by speculative biddings by economic saboteurs who exaggerated demand for the currency and forced massive depreciation as they mopped up the paltry supply in the forex market for round-tripping which made them instant billionaires as the exchange rate of the naira plummeted precipitously.

As CBN beefed up supply and even started allocating forex to bureau de change (BDC) operators, investors’ confidence in the embattled currency returned and bolstered its climb out of the precipice.

Perhaps, the greatest step taken by CBN to halt the precipitous plummeting of the exchange rate of the naira is the move to halt speculative biddings. 

That measure has stemmed voracious demand and round-tripping which were at the root of the relentless depreciation of the naira.

President Bola Ahmed Tinubu should move ahead of the CBN and institute a massive probe into the sale of foreign exchange by banks in the last six months. The probe should take the shape of the investigation carried out by Obaze on the perfidious tenure of Godwin Emefiele as CBN governor.

The probe which should be aimed at determining the cause of the precipitous depreciation of the naira during the period should have the ulterior motive of prosecuting any bank official who abused his office during the period and in the process contributed to the demise of the naira.  

Any bank official indicted in the probe should be prosecuted and sent to jail to serve as a deterrent. 

That is the only way to pre-empt a return of the massive hoarding and speculative bidding that inflicted the hardship currently being suffered by millions of Nigerians.

If those who caused the calamitous depreciation of the naira in the last six months are allowed to enjoy their loot, they would return with the same treacherous device when CBN lowers its guard.

There are several lessons to be learnt from the impressive performance of the naira in the last three weeks. One of the lessons is the gains from ensuring accountability in forex sales by the CBN.

The managers of Nigerian banks are too duplicitous to be trusted with forex sales without stringent demand for accountability in a bid to ascertain that no foreign exchange from the CBN is used for round-tripping or hoarding.

Above all, the impressive performance of the naira should knock some sense into the heads of the men in the monetary policy committee of CBN.

The massive appreciation of the naira in the last few weeks is not the outcome of the merciless grip on liquidity conjured by the monetary policy committee of CBN.

It was engendered by the considerable improvement in forex supply and the CBN measures that frustrated speculative bidding and currency round-tripping.

The massive hike in monetary policy rate (MPR), the country’s benchmark lending rate, has only succeeded in worsening inflation as manufacturers and service providers add the high cost of funds to their production cost and hike prices as they pass the extra cost of production to consumers.

It is very clear that the draconian MPR hike and merciless grip on liquidity has failed to tame inflation as projected by the monetary policy committee of the apex bank.

The naira has appreciated by well over N700 in the last two months since it reached the record low of N1,865 to the dollar in February.

Unfortunately, inflation has defied the dictates of the naira and has been on the upswing even as the naira’s northward journey remains undaunted.

Headline inflation for March stands menacingly at 33.2 per cent. Food inflation has reached the dangerous point of 40 per cent.

That is because inflation is caused by infrastructure deficits, profiteering by manufacturers, service providers, wholesalers and retailers. 

Excess liquidity has no hand in the inflation surge. CBN is just chasing shadows with liquidity squeeze and MPR hikes.

The federal government must clip the wings of these merciless saboteurs if the war on inflation must be won. 

A segment of the retail chain is already taking advantage of the massive appreciation of the naira without passing on the gains to consumers.

Those buying computer scraps have reduced purchase prices drastically because of the declining fortune of the dollar. Meanwhile, prices of food items are still climbing. A bag of garri now sells for N40,000.