The premium between the Investors and Exporters window, (I&E) and parallel market exchange rate of the Naira to the US dollar hit N378 yesterday, as speculators continue to stake on the Naira.
The value of the currency dipped to N825 to the dollar yesterday in Lagos from N800 which it had earlier been selling, while it stood at N446 to the dollar at the I&E. At the banks, it exchanged at N447 leaving a wide gap of over N378 to the dollar and spurring arbitrage.
Demand for the greenback rose after the Central Bank of Nigeria (CBN) announced that it will be redesigning the larger denominations of the currency. The apex bank is to begin issuing the new notes of N200, N500 and N1000 notes on December 15, 2022 as the current notes will no longer be legal tender after January 31, 2023.
Black market currency traders who spoke with LEADERSHIP noted that the increased demand for the dollar had spurred the declining value of the naira which declined from around N740 at the parallel market to N800 at the beginning of this week.
Experts, who spoke to LEADERSHIP believes the Naira redesign project of the Central Bank of Nigeria(CBN) has further created problem in the foreign exchange market, wondering why the apex bank could embark on such move that wiill consume hundreds of billions of naira at a time the nation is battling fiscal deficit and rising debt profile.
Speaking on this, Professor Bongo Adi of the Lagos Business School(LBS), Ajah, Lagos, said:
“The news of the apex bank move has further devalue the nation’s currency further, creating hike in dollar value. Anybody planning to control inflation must start by addressing the instability in foreign exchange market. But instead, the news of Naira redesign has even further hike dollar against the Naira. As at Saturday, dollar is being exchanged for over N800 and this will continue as people continues to convert their Naira notes to dollar.”
Kidnappers too, he said, may now be demanding for dollar at the expense of the Naira and this will further mount pressure on the nation’s legal tender.
On his part, the chief executive officer(CEO), Centre for the Promotion of Private Enterprise [CPPE], Dr. Muda Yusuf, said, the news is hyping dollar against Naira as it now exchanged for over N800 to a dollar.
“It is difficult to see the value proposition of this currency redesign idea. The cost of such an action would be outrageous and disproportionate compared to the expected benefits advanced by the CBN.”
“At a time when the government is grappling with high fiscal deficit, debt crisis, severe revenue crisis and underfunding of many government projects and programmes, it is most inappropriate to embark on such a profligate exercise,” he stressed.
To him, “there are more urgent issues demanding the attention of the CBN. We have issues with liquidity in the foreign exchange market, the depreciating currency, the recent Moody’s downgrade of Nigeria, soaring inflation and many more.
“The CBN should save the citizens and the economy the trauma of this currency redesign. It is a distraction we can do without.”
Commenting on the redesigning of the Naira, head of Financial Institutions Ratings at Agusto&Co, Ayokunle Olubunmi, noted that, in the last couple of months, the CBN has been trying to control money supply and ultimately inflation.
“One of the things they have realised is that there is a significant proportion of the currency that are outside the banking system that are predominantly with individuals. The belief is that a portion of those monies are actually illegal funds or even lost. So the idea of redesigning the naira is to control the volume of the naira in circulation.
“Ultimately the CBN will have a better picture of the amount in circulation. so the idea will be to reduce the currency in circulation. However, some of us believe that it might not be too successful because Nigeria is a cash based economy and most people transact mainly with cash.
“Thus the amount of cash that it will reduce may not be that significant. Asides that, printing and designing the naira is something that will be costly,” he stated.
Afrinvest Limited said CBN’s decision is hinged on the need to curb large-scale hoarding of banknotes by non-bank actors, worsening shortage of clean and fit banknotes, and the elevated risk of currency counterfeiting, saying, “like other Apex Banks across the world, the CBN is constitutionally empowered to take measures that would ensure the preservation of the integrity of the fiat note, as part of currency management functions.”
It noted that over 85.0 per cent of currency in circulation (CIC) was outside of banks’ vaults in September 2022, while this submission is undeniable, it could be linked to the high financial exclusion rate, large informal sector activities, lack of banking presence in many remote communities and the weak confidence in the efficiency of the formal financial system, especially by informal sector players.
Afrinvest said: “these dynamics we believe partly contributed to the failure of the recent MPR hikes from stemming inflation as anticipated by the CBN. Furthermore, we are of the view that the problem of a worsening shortage of clean and fit banknotes would persist if the CBN and relevant law enforcement agents do not up their games.”
On potential positive impacts, Cordros Securities Limited noted that “illicit hoarders may recourse to the parallel market FX operators to convert their naira to dollar instead of going directly to deposit the money in the banks.
“However, given that Anti-Money Laundering (AML) rules are expected to be tight, we believe parallel market FX operators will not accept the money from the illicit hoarders as they could be apprehended for Money Laundering if they subsequently deposit such money at the banks.”
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