For about 7 years, Central Bank Governor Godwin Emefiele struggled to stop the free fall of the Naira, which continues to struggle with the world’s major currencies.
Emefiele’s interventionist approach failed to boost the Naira which experienced an unprecedented N165 shantytown to the dollar he inherited in 2014 when he was appointed by former president Goodluck Jonathan to this which it is currently trading on the parallel market. .
To defend the Naira, Mr. Emefiele adopted a number of intervention policies that many economists saw as falling outside the monetary policy mandate of a central bank.
Policies such as the Key Borrower Program, the Strategic Maize Reserve, the Agribusiness / Small and Medium Enterprise Investment Program, and the Targeted Credit Facility, all aimed at boosting local production to reduce the imports.
In March, the CBN also introduced the CBN Naira for the Dollar to encourage Nigerians in the diaspora to send money via licensed international money transfer. The policy is to donate N5 for every dollar received by IMTO.
Amid the pandemic, Mr Emefile wrote an editorial on what the country needs to do to mitigate the impact of the lockdown due to the pandemic. In the editorial, the governor of the CBN called for more intervention to increase local production.
“For a country of 200 million people… we can no longer continue to ignore repeated warnings of the dangers that lie ahead if we don’t start to depend heavily on what we produce locally…” said Emefiele.
For observers, this line of argument is consistent with the direction of the CBN under Emefiele, which seeks to lower imports to reduce pressure on the foreign reserve and by extension the Naira.
Mr. Emefiele supported the border closure to protect the CBN’s key borrower program, targeting sufficiency in rice production. This policy appears to be in line with President Muhammadu Buhari, who re-appointed Mr. Emefiele for a second term in 2019.
In the editorial quoted above, Governor Emefiele did not disavow the label of protectionism, rather he justified the label as follows.
“The Bank has repeatedly been accused of promoting protectionist policies. My response has always been that leaders are first and foremost accountable to their own citizens. “
At the time of writing, the Naira is trading at N570 to the dollar on the black market.
Recently, Mr. Emefiele took a more direct approach to saving the Naira, including a new approach on Bureau De Change agents and the fight with Abokifx.
In this article, DAILY POST reviews the central bank’s monetary policy under Governor Emefiele and its corresponding impact on the naira and the economy.
Prohibition of cryptocurrency
On February 5, the Central Bank of Nigeria issued a circular banning commercial banks from dealing with entities trading cryptocurrencies. The policy sparked an uproar.
The CBN said the opacity of cryptocurrency has become well suited to the conduct of many illegal activities, including money laundering, terrorist financing, and the purchase of small arms.
Even though the CBN issued the circular to banks, it did not necessarily declare it illegal, through peer to peer platforms, Nigerians continue to trade in cryptocurrency, which allows Nigerians to buy bitcoins. and others directly to those who wish to sell. The use of Whatsapp is also popular among traders of these crypto coins.
Paxful, a crypto trading platform has 1.5 million subscribers in Nigeria, out of a total of N7 million users worldwide.
The latest CBN policy is the planned introduction of digital currency, a digital form of fiat currency that will launch on October 1 to coincide with the Independence Day celebration.
CBN digital currency is different from cryptocurrency, as the latter more or less resembles fiat money issued by the Central Bank and will be pegged to the Naira. This is totally against the principle of crypto, which is not regulated by any authority,
An economist, Wasiu Adekunle, research analyst at the Nigeria Economic Summit Group (NESG) told DAILY POST that CBN e-money is not an alternative to cryptocurrency, but rather a digital substitute for the Naira, which does will only help the cashless policy. of the government.
Insecurity worsens inflation in Nigeria – CBN boss Emefiele
He said that despite the Central Bank’s attempts to unify the market through the I&E window, the parallel market is a true reflection of the value of the Naira.
“The problem is not whether to defend the Naira or not. What we are supposed to do to stabilize the naira we are not doing. If you ask an economist what determines the exchange rate, these are inflation, the interest rate, and output (how much do you produce as a country?)
“If you take inflation, if inflation is 5% in the United States and inflation in Nigeria is 17% as it is. The relative purchasing power parity of the naira against the dollar will depreciate by 12%, the difference between the two inflation rates. This is if the exchange rate in Nigeria follows this relative purchasing power parity.
“How does it work? When inflation is high in Nigeria, it indicates our cost of production is high in Nigeria. People won’t want to buy from us, it’s called imported inflation.
Speaking on the call from some Nigerians that the CBN should float the Naira, he said almost all options have been tried out by Nigeria, rather than the country having adopted the managed float policy, to have the pegged and floating exchange rate policy existing side by side. .
“We have experimented with all the options, floating and stowed. We have experimented with peg, which is the fixed exchange rate, we have experimented with the float during SAP (Structural Adjustment Program), now we have managed the float exchange rate, which is a combination of the two.
“Official rate, remember, CBN stopped the fixed rate, moving to the NAFEX window, which is the I&E rate. We don’t have an official tariff, which is one of the ways Emefiele tries to unify the tariffs. There has been pressure from the IMF for Nigeria to unify rates, for multiple exchange rates to create problems.
“What Emefiele is trying to do by devaluing the naira 3 times in the past year and adopting NAFEX is to unify the rates in style. The parallel rate is the realistic rate. It is more about the rate. of an underground economy, determined by demand and supply.
Young Peoples Party presidential candidate in the 2019 election and former vice-governor of the Central Bank of Nigeria, Kingsley Moghalu recently criticized the CBN’s foreign exchange policy.
In a Twitter thread on Monday, Moghalu said the Naira will remain volatile as long as Nigeria depends on crude oil as its sole source of foreign exchange.
According to Moghalu, the Naira crisis will worsen due to growing debt, inflation and the activities of speculators, who will prey on weak currencies around the world.
As the country awaits the official launch of the e-naira, there are concerns that it may be part of the other round of attempts to save the Naira.