August 17, 2022

EDITORIAL: Emefiele, CBN, And The Naira

4 min read

CBN Governor, Mr. Godwin Emefiele

When Emefiele assumed duty as the head of the country’s apex financial institution in June 2014, many Nigerians expected clear-sighted efforts that would define the country’s economic landscape.

The continuous weakening of the Naira in both parallel and official markets in the past weeks has put the Central Bank of Nigeria Governor, Godwin Emefiele, under the attention and harsh scrutiny of the public.

In the parallel market, the situation is even worse, whereby the Naira has weakened from $1/N180 to $1/710. This is an 85.5% depreciation of the Naira in 8 years.

This rapid depreciation over 8 years has occurred despite numerous forex policies by the CBN, albeit policies have been skewed towards capital controls and demand-side management.

The fall in oil prices, which began in late 2014, triggered the first set of devaluations of the naira, falling from N165/$1 to about N187/$1.

By 2016, the exchange rate experienced large volatility, specifically falling to about N350/$1 and then N510/$1 before the apex bank introduced the Investor & Exporter window (IEFX), which helped stabilize the rate for the next two years. Specifically, between 2017 and 2021, the official rate oscillated around the N360/$1 range.

Note that in addition to the IEFX window, the apex bank also offered high-interest rates to foreign portfolio investors (FPI) aimed to attract associated USD inflows. Trillions of naira were spent by the CBN to pay interest on controversial OMO bills that attracted up to $13.4 billion in FPI in 2019.

CBN Governor, Mr. Godwin Emefiele

However, since the COVID lockdowns in 2020, the Naira exchange rate has continually depreciated every month in the parallel market. The official rate at the IEFX also reflects exchange rate declines, albeit at a slower pace.

In recent months, the CBN appears to have shifted its focus to increasing organic dollar inflows.

Specifically, in March 2021, the CBN introduced the “Naira 4 Dollar Scheme,” intended to boost the inflow of diaspora remittances into the country. This programme works by paying diaspora remittance recipients an incentive of N5 for every USD$1, received through a licensed international money transfer operator (IMTO).

In May 2021, CBN adopted the NAFEX rate as the benchmark rate. This initiative simply meant that rather than having multiple official rates (e.g. the CBN rate at N379/$ versus the IEFX rate of N410/$ at the time), the CBN simply decided to reduce the number of official rates. Arguably, one benefit of this action was that it reduced the FX subsidy by at least 7.5% (N410/$vs. $379/$).

In July 2021, the CBN announced the discontinuation of foreign exchange (forex) sales to Bureau de Change (BDC) operators. The governor of the CBN, Godwin Emefiele, alleged that some of BDC’s actions contravened the agreement with the apex bank by seeking to maximize profits, which he deemed excessive.

In October 2021, the CBN launched the eNaira, the continent’s first digital currency. eNaira acts as both a means of exchange and a store of value, offering improved payment prospects in retail transactions when compared to cash payments.

In February 2022, the CBN extended the Naira for Dollar scheme from the IMTOs to the IEFX window. Specifically, the CBN released instructions that outline how it will facilitate payment of N65 for every US dollar repatriated and sold at the Investors and Exporters Window.

In countries with high inflation, there are usually huge outflows of capital as folks are reluctant to save in that currency given that inflation will erode the value of their savings. When high inflation is compounded by low growth, this simply accelerates capital flight.

Consequently, despite the flurry of new policies designed to organically attract dollar inflows, the twin challenges of high inflation and low growth remain a stumbling block to increased dollar inflows.

The CBN has the option to increase interest rates to attract more investors, but thus far, the apex bank appears unwilling to pull that lever, attributing its stance to a need to pursue a development finance agenda to boost economic growth.

However, the CBN is under additional pressure to reevaluate its dovish stance in light of the recent surge in inflation, which is currently about 17.71%. Furthermore, the Nigerian central bank is most certainly watching what is happening in South Africa, Ghana, and other developing market countries that have also raised interest rates.

The aforementioned twin challenges of high inflation and low growth, coupled with the CBN’s low-interest rate stance, have simply meant that Nigeria’s capital inflows plummeted to a four-year low of $9.66 billion in 2020, only to drop further to $1.57 billion in 2022.

Ultimately, it is likely that from a monetary policy perspective, further actions will be required, such as an interest rate hike, as words and intent alone are insufficient to attract the necessary capital inflows required to stem the ongoing Naira depreciation.

The value of the naira in exchange on the international market has now become so worthless. No thanks to the incompetency of the Governor of the Central Bank of Nigeria, Godwin Emefiele.

As the naira now exchanges for $1 at N710, it is expected that Godwin Emefiele will step down from office with shame and bid public office goodbye forever.

The effect of his incompetence on the lives of Nigerians is that the little stipend paid as a minimum wage is no longer sustainable.

The National Assembly should, as a matter of urgency, sack the incompetent CBN Governor now as Nigerians no longer have confidence in Godwin Emefiele’s blame game.

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