Nigeria, just like every other nation, needs strong and sound foreign reserves to meet international payment obligations, boost the nation’s credit worthiness, provide balance against local and foreign shocks, manage inflation and maintain a stable exchange rate for the nation’s currency. Keeping watch over the currency at all times is therefore the core objective of the federal bank, named Central Bank of Nigeria (CBN). The foreign reserve is also called external reserve. In fact, CBN is the defender of the nation’s currency, naira. They must do this.
It is interesting to know that Nigeria’s external reserve comprises of three components, which are, the Federal Government, the Central Bank and the Federation part or portion. The federation’s component consists of sterilized funds (un-monetized) held in the Excess Crude and Petroleum Profit Tax/Royalty accounts at the CBN, which belongs to the three tiers of government namely Federal, State and Local Government.
The Federal Government’s component consists of funds belonging to government agencies such as the Nigerian National Petroleum Corporation, Power Holding Company of Nigeria and the Ministry of Defence for Letters of Credit opened on their behalf, among others. The CBN portion consists of funds that have been monetized and shared from which the Bank conducts its monetary policy and defends the value of the naira.
In 2022, the CBN released $7,6b within 5 months to defend the struggling naira. Rewind to 2018 alone, as the economy struggled, the bank released a total of about $39bn, to defend the nation’s currency in the foreign exchange market. Statutorily, the CBN usually intervenes in the foreign exchange market by injecting liquidity about three times a week.
The injected funds are for intervention to provide sufficient forex to authorized entities for the purposes of meeting their forex for import and export needs. Such sectors like SMEs, Manufacturing, Agriculture and customers in need of forex for school. Medical and BTAs for overseas, all benefit from this intervention. The intervention is actually carried out through the money deposit banks and authorized Bureau De-Change- BDC, (what Nigeria calls Black Market Operators.)
THE CRISIS AND THE MASTERMIND
Now the situation is different in the real sense. The CBN allocates these funds three times in a week to these two outlets in specific proportions according to the strength of the operators. So, for instance, the entire $7,6b allocated within 5 months passed through these two categories of channels: the Commercial Banks and BDC. This is done at a rate called CBN or Official Rate while the BDC sells the forex to authorized buyers, strangely, at what they call Parallel Rate or Black-Market Rate.
The rational of selling same product to same customers to meet same need but at different rates is what baffles observers like myself. For instance, why sell funds to BDC at CBN official rate of N450/$1 and the BDC instantly sells same to customers at N700/$1. This is the simplest explanation to what I have called grand official national fraud.
The BDC, originally should be controlled by CBN, but what happens is that the BDC now controls the CBN. What an irony.
The worst is that the rigors of procuring the forex in the Banks makes it near impossible for the people in real need of to access it, whereas few blocks away the forex is in endless availability with the BDC at extremely seamless process.
CBN, in trying to mitigate an avoidable forex squabble, jerks now and then with all manner of policies to try to curtail the catastrophe. At a time, Nigerians cannot even make online payments for goods and fees unless they have Forex Bank Account. Small payments in dollars for renewal of website, purchase of goods online and payment of tickets are all impossible now unless one has forex account. In fact, one can easily walk over to a BDC operator by the road side and pay N 74,000 instead of N 45,000 for a payment of $100. It is this bad.
How then do people that really need the forex cope especially when challenged with endless excruciating documentation required by the banks to carry out such a simple task of making $100 online payment.
IMPLICATION OF INDUCED FOREX FRAUD
It is pure fraud because the system has simply legalized round tripping. This is so bad that countless allegations are in the media accusing the CBN of selling forex to government cronies and dubious entities who in turn sell same to the BDC at sweet profits. I mean what justification is it that a BDC operator that buys forex at N 450/$1 sells same to N 740/$1? It is impossibly justifiable.
The citizens have joined in the fraud. Diasporas send money to their families through the international accredited agents at CBN rates, their relatives drew these monies and straight away sell it to BDC operators at very juicy profits.
The Nigerian diasporas remit about $20b annually to Nigeria. Large part of these funds arrive Nigeria through different unofficial channels. These amounts go straight to the BDC who in turn sells it at their own decided rates depending of the forces of demand. How can CBN control such juicy process when indeed they have aided the criminality?
CUTTING THE HEAD OFF
The solution is simple- unify the forex exchange market and push for more export. However and whichever, the bottom line is that until a unified forex regime operates in the Nigerian monetary ecosystem, the pressure on naira will prevail; and as long as the pressure of induced-scarcity prevails in the official sub ecosystem, the Black Market will boom and as it booms, the fruitless efforts of CBN to control inflation of forex catastrophe shall prevail.
Goods, services, import, export and all other aspect of the nation’s life that depends on the forex stability shall remain at the mercy of the scrupulous activities of the BDC elements funded by same CBN that should police them.
The challenge is made worse as Nigeria exports only but crude oil, which the export capacity has been so abysmal at less than 50% of the official OPEC quota. No thanks to oil theft, incompetent national petroleum corporation, completely inept Ministry of Petroleum and chronic organized executive criminality orchestrated within a dangerous network within the federal government.
Stay tuned to read in the next edition from the Publisher: The Bazaar in the Creeks: The Brazen Oil Thievery By The Nigerian Government
