In a country that has its legal tender, it is surprising how the dollar and its exchange rate determine almost every transaction in Nigeria to the detriment of the local currency – the naira.
More surprising is how the same foreign exchange has two different values, depending on where it is being traded.
As a result of the exchange rate volatility of the naira, President Bola Tinubu announced the floating of the Nigerian currency to peg the activities of unwholesome middlemen in his inaugural speech on May 29, 2023.
The idea of floating the naira means that people can get forex at the banks at affordable rates.
Banks and other institutions can buy and sell dollars at their rates.
Financial experts say, ordinarily, this should have been sufficient enough to boost the power of the Nigerian currency.
Welcomed by many, the measure failed to produce the desired result and seemed to plunge the Nigerian currency into further deep against major foreign currencies.
In response, the Central Bank of Nigeria (CBN) initiated a comprehensive strategy to enhance liquidity in the forex market, including unifying FX market segments, clearing outstanding FX obligations, and introducing new operational mechanisms for Bureau De Change operators.
Others are enforcing the Net Open Position limit for commercial banks, and adjusting the remunerable Standing Deposit Facility Cap. Yet, the naira keeps dropping in the forex market.
The apex bank also said that Nigerians spent about $98bn on foreign trips, medical tourism, and overseas education, which was by far more than the total foreign exchange reserves it had.
Also, it was realised that merchants on crypto platforms list their exchange rates for buying US dollars for naira and aim to attract sellers by proposing high naira values for the US dollar.
To remain competitive and attract sellers, merchants advertise higher dollar-to-naira rates than they are willing to pay, causing the visible dollar rate to increase and the implied value of the naira to decrease.
Worried by the continued depreciation of the Nigerian currency, the federal government decided to make further concerted efforts to safeguard Nigeria’s foreign exchange market and combat speculative activities.
Central to those efforts is a multi-pronged and multi-agency approach, which saw the Office of the National Security Adviser (ONSA) and the CBN joining forces to address challenges impacting the nation’s economic stability.
The collaborative approach to tackle these infractions also involves a coordinated effort with key law enforcement agencies, including the Nigeria Police Force (NPF), the Economic and Financial Crimes Commission (EFCC), the Nigeria Customs Service and the Nigeria Financial Intelligence Unit (NFIU).
Indeed, the decision to join forces to tackle the challenge at hand is in line with the provisions of Nigeria’s National Security Strategy (NSS 2019).
Chapter Five of the document spells out measures to achieve economic security.
“Our overall national security agenda, including sustainable development, prosperity and external influence is dependent on a viable and prosperous economy.
“We will integrate our economic potential and opportunities with other components of national security for the prosperity of our people…
“We will uphold the principle of free enterprise; and create an equitable business environment to promote an efficient, dynamic, and self-reliant economy.”
Most importantly, it emphasises the need for collaboration: “All relevant Ministries, Departments and Agencies (MDAs) or institutions established for national economic management will collaborate to ensure effective and efficient implementation of the economic objective of this Strategy.”
In a 2021 article on the NSS, Chukwuemeka Uwanaka almost predicted the scenario that called for the multi-agency response against naira depreciation when he wrote: “On the economy, the ONSA should play a more collaborative role in the fight against financial crimes and official corruption.
“This will ensure that the increased expenditure and appropriation in the social sector are not lost in the procurement process.”
Authorities said the primary objective of the multi-agency and multi-sector collaboration was to systematically identify, thoroughly investigate and appropriately penalise individuals and organisations involved in wrongful activities within the FX market by leveraging the expertise of these agencies.
The CBN maintained that, despite proactive and commendable measures taken to stabilise the foreign exchange market and stimulate economic activities, the effectiveness of its initiatives was being undermined by the activities of speculators.
These speculators, it said, operate through various channels, thereby exacerbating the depreciation of the Nigerian Naira and contributing to inflation and economic instability.
In what has been hailed as a decisive action to address the depreciation of the naira against the dollar, the Nigerian government blocked the online platforms of Binance and other crypto firms.
This move aimed to prevent further manipulation of the forex market and curb illicit fund movements. Other platforms blocked include Forextime, OctaFX, Crypto, FXTM, Coinbase, and Kraken, as part of the government’s efforts.
The government also disclosed its intention to raise $10 billion to enhance liquidity in the foreign exchange market, indicating its commitment to addressing the challenges faced by the currency.
On its part, ONSA issued directives to law enforcement agencies to take strict actions against individuals involved in speculation in the foreign exchange market.
Before then, the Economic and Financial Crimes Commission (EFCC) raised a 7,000-man special task force across its 14 zonal commands to clamp down on dollar racketeers.
While answering questions from journalists on the recent restriction on Binance and other cryptocurrency platforms, the CBN Governor, Olayemi Cardoso, said, in the last year, more than $26 billion was funnelled through Binance without a trace.
He added that the CBN was moving to a very aggressive regulatory environment.
“Tolerance for people who will not abide by the regulations that are coming out is zero. People will have to comply with our regulations or face the consequences for not doing so,” he said.
Bayo Onanuga, Special Adviser to the President on Information and Strategy, said in an interview that by taking these measures, the federal government is trying to prevent economic saboteurs from ruining the country.
“We have saboteurs. Look at what Binance is doing to our economy. That is why the government moved against Binance.
“Some people sit down using cyberspace to dictate our exchange rate, hijacking the role of the CBN. They just sit down and fix anything they like. It’s sabotage, and we are trying to prevent that from happening henceforth,” he said.
The considerable results these various measures of government have produced within a short time not only point to a right step in the right direction. They also show the ability of the present administration to respond adequately to Nigeria’s economic and other challenges.
By Kayode Adebiyi, News Agency of Nigeria (NAN)