That CBN intervention in the forex market

Until recently, the dollar was wearing the toga of an absolute monarch in the foreign exchange (forex) market. It ruled and reigned unchallenged and it seemed as if its benign neglect of the rules of the game will last forever. But nothing lasts forever. The American currency may still be a king in the market but it has been stripped of its powers to dictate the terms as it deems fit. That power was eroded when the Central Bank of Nigeria (CBN) pumped in an unprecedented volume of the currency into the market in quick succession.

Without warning, the apex bank created a dollar glut and its value crashed to the benefit of those who need it for business and other activities. With additional inflow of dollars to meet the ever insatiable demand for foreign exchange by those who need it to offset Personal Travelling Allowances (PTA), commitments for school fees and medicals, the drop in the value of the hitherto almighty dollar was dramatic and, of course, the Naira was given a breathing space for a change.

That master stroke by the CBN exposed the artificiality of operations in the foreign exchange market and the hypocrisy of those who play unpatriotic games in the market while at the same time blaming the government of not doing enough to build the economy. It became obvious that the market was wilfully manipulated by speculators, foreign and local, who have been consistently conspiring to bring not just the naira but the Nigerian economy to its knees.

The CBN, in explaining the rationale behind the decision to intervene in the market in such a grand style, said that it was in keeping with its determination to increase liquidity in the foreign exchange market, especially the wholesale forwards segment of the market and just as it pumped even more foreign exchange into the banks specifically for the settlement of dollar demand for school fees, medicals and Personal Travel Allowance (PTA), among others.

The apex bank has every reason to grandstand and beat its chest that those saboteurs of the economy were beaten in their own game. This is just as it asserted that its commitment to providing enough foreign exchange for legitimate businesses remains unshaken. The CBN pledged to do all within its power as well as limits of the possibilities provided by other intervening variables to ensure a steady supply of forex to the market.

The professional manner in which the management of the apex bank has dexterously managed this intervention to achieve maximum effect, has been commended. Within this short period that it has made large amounts of forex available to the market, the local currency, the Naira, has appreciated significantly in value by over N85 in less than one week. This is a positive move that may reinforce expectations in the market that the local currency may well be on a permanent journey to its natural value which some analysts put at less than N300 to the dollar.

As stated earlier, the CBN had maintained that much of the dollar demand had been a bubble created by speculators and hoarders of the greenback and it had warned market players and keepers of dollars to make hay and sell their holdings in order to avoid heavy losses.

In the opinion of most Nigerians, what was happening in the foreign exchange market, especially in the so called black market, before this CBN coup, is a sad commentary on the greed and avaricious tendencies of Nigerians working with their foreign collaborators to sabotage efforts to create a vibrant economy that will expand and be strong enough to generate employment, explore its potentials to diversify and place itself on a sustained path of growth and development.

The round-tripping of foreign exchange and other nefarious activities in the market created the unfortunate impression that the government and, the CBN in particular, had ran out of ideas on what to do to place the economy on an even keel. All that has been debunked by this timely measure applied by it.

While Nigerians acknowledge the fact that the CBN can only give from what is available, it is our view that regular interventions of this nature will send the message home that losses await attempts to bend or play outside the rules and also discourage those intent on ripping the nation off.

Source: NigeriaToday



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