CBN Ban On Speculative Buying Of Dollars

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During the apex bank’s recent MPC meeting, the CBN ban on speculative buying of Dollars using the Naira was announced by its governor, Mr Godwin Emefiele. The Central Bank of Nigeria Governor warned those in the habit of using our local currency – the Naira- to purchase the US Dollar for speculative purposes during the last Monetary Policy Committee (MPC) meeting on 19th July 2022.

According to the Governor, “We monitor liquidity in the system, and as we see that there’s excess liquidity, we will continue to use discretionary powers to move those liquids from the vault of the banks so that they do not get involved or in speculative activities with people who want to speculate with the currency.

“For those who want to use the naira to buy dollars because of the election, I want to warn, not advise, that it is illegal to do so. Whereas it will sound more convenient that you should carry dollars because it has a lot of value in your pocket. But if the security agencies hold you, you know the implication of that, we would continue from our side. We have our apparatus through which we monitor the movement of funds between customers or between banks and customers from one bank to the other bank.”

This latest warning from the apex bank is coming on the hills of constant bashing of the Naira at the foreign exchange market, with the currency trading at N625/$1 (on the black market) the same day CBN Governor issued his statement.

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Why Is The Naira Losing Value?

Nigeria’s local currency, the Naira, has been on a depreciation spree in the last 8 years. From a relatively stable rate (black market) of N180/$1 in 2014 to N625/$1 as of July 2022, it now seems like the Naira is heading to the ultimate destination of N1,000/$1. So, how did we get here?

Among other numerous factors that have bogged down the value of the Naira, low production activities in the non-oil sectors of the economy the following points listed below are worthy of note.

  • The demand for the naira is low due to low manufacturing activities, especially in the non-oil sector of the economy
  • As a result of the point above, the country always has a huge trade deficit balance, often running into trillions of Naira. In other words, we import more goods than we export.
  • The country’s first foreign exchange earner – crude oil, is in low production due to militant activities and oil theft.
  • Further demands on the limited foreign currency (dollars) available for school fees payment abroad and medical tourism are also pushing available dollars to scarcity.

Why The CBN Hammer Is Coming Down Hard.

The CBN hammer is coming down hard on both the currency speculators and desperate politicians. The currency speculators buy up the Dollar with Naira only to sell when the price increases. While desperate politicians are also mopping up the few dollars available in the FX market for electioneering purposes. Both the politicians and currency speculators are inducing artificial scarcity of foreign exchange.

And the latest warning by the CBN Governor, Godwin Emefiele, is strictly directed to both the currency speculators and politicians. This action by the CBN has become necessary as another election season has kicked off in preparation for the general elections in 2023.

How Are Businesses Surviving?

The free for all fall of the Naira simply means that the Dollar is gaining value and is in much higher demand than before.  For businesses that rely on sourcing their production materials or inventory from abroad, the scarcity of dollars due to excessive demand has brought economic woes to them.

With the disruptions arising from the fallout of the COVID-19 pandemic yet to completely subside and the global supply chain disruption resulting from the Russia/Ukraine conflict, businesses in Nigeria especially are facing multi-pronged existential threats.

Businesses need to activate their survival mechanism in these hard times by devising new strategies to help them adapt to the current realities.

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The Way Forward For Businesses With The Naira Fall

  • Businesses that are strictly into product manufacturing with production inputs mainly coming in from abroad may consider divesting to service-oriented offerings.
  • The CBN ban on speculative buying of dollars is the right step in the right direction. The apex bank needs to intensify its regulatory activities by also coming down heavily on financial institutions collaborating with currency speculators and politicians.
  • Businesses can also look inwards at the available local substitutes for their production of raw materials and make use of them.

On a final note, the business community in Nigeria and everyone must show uncommon courage and resilience in the face of the current economic challenges. These challenges will in no distant time give way for a new rebound in the country’s economic fortunes… It’s time to see HOPE!

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