2022 IN REVIEW: How Emefiele’s CBN policies enriched dollar hoarders

Dollar hoarders are the biggest winners in the investment market in 2022, thanks to the policies of Godwin Emefiele, the governor of the Central Bank of Nigeria (CBN).

Within twelve months, the exchange rate between the naira and the dollar rose to N461.50/$1 as at Friday, December 30, 2022, up from N422/$1 it started January 2022 with in the official market.

At the black market, the dollar rate went up by N175 within 12 months, as the cost of exchanging the dollar to naira ended the year hovering above N740, myaccording to Ripples Nigeria’s Naira Watch, surpassing the year’s opener of N565/$1.

Dollar hoarders make a whopping return on rise in USD value

This means the return on investment for persons that hoard dollars from January to December is 30.9 per cent judging by the exchange rate in the black market or 9.18 per cent based on the rate in the official market.

However, if the words of the World Bank regarding traders taking advantage of the premium rate difference in the multiple exchange rate regime are anything to go by, the ROI is more lucrative than aforementioned.

According to the World Bank, “with the rising parallel-to-official rate premium, incentives are created for agents to settle transactions outside of the I&E window at the parallel rate even after benefiting from the RT-200 rebate.”

Also, the President, Association of Bureau De Change Operators of Nigeria (ABCON) Aminu Gwadabe, had stated that the difference in both markets’ rates encourages rent seeking and currency substitution.

Based on the assertion of the World Bank, dollar hoarders, who have been the target of Emefiele’s gun barrel or policies, recorded a return of 75.07 per cent gain by buying USD from the official market and selling in the black market as of Friday, December 30, 2022.

Even the once-talked-about money-making asset, Bitcoin, didn’t offer investors such benefit that hoarders of dollars in Nigeria gained, as BTC investors recorded -63.9 per cent loss on investment in 2022. Also, the king of investable assets, Gold, could only manage a 0.45 per cent return.

Godwin Emefiele’s policies that enriched dollar hoarders

Emefiele had made and retained several policies that brought out critics like former deputy governor of the CBN, Kingsley Moghalu, Gwadabe, state governors, and lawmakers, amongst others aiming for his head.

Some of the policies include;

Ban on BDC operators: Prior to July 28, 2021, the central bank was selling $20,000 weekly each to 5,500 BDC operators ($110 million per week). However, in a surprise move, Emefiele suspended the sale, causing Bureau De Change operators to independently source alternatives that could provide that volume of forex.

Despite calls from Bureau De Change operators, stating that the ban would halt the exchange rate, putting the Nigerian economy at a disadvantage, while hoarders gain from the decision, Emefiele extended the policy into 2022.

Before the ban, Nigeria was the only country in the world that has its Central Bank sell dollars directly to BDCs. And prior to the suspension in 2021, the CBN had also banned sale to BDCs in January 2016. At the time, BDCs were selling a dollar at N250.

As a result of the decision, the exchange rate skyrocketed in the black market, hovering around N400/$1 by August 2016 – far above the N250 rate CBN accused the BDCs of selling after buying from the apex bank at N197/$1.

CBN backtracked, commencing twice weekly forex sales to BDCs from April 3, 2017, in a bid to control or sustain liquidity in the foreign exchange market. Due to the hike in the USD, the CBN’s selling price to the BDCs was above N300/$1.

So Nigerians are somewhat, experiencing a de javu, only this time, it’s a reality that’s worst than the past. Due to BDCs’ inability to find an alternative to CBN’s forex volume, they have resort to depending on the public.

Read also:Southern, Middle Belt leaders reject plot to remove Emefiele, demand DSS chief’s sack

As a result, the ban increased forex shortage and raised the value of dollar by N175 within 12 months, as demands overshoot supply, pushing dollar rate from N565/$1 to N740/$1 in the black market.

Redesigning naira to tackle hoarders: Emefiele played into the hands of speculators or dollar hoarders by redesigning the naira in hope that persons keeping the naira away from the banks will return them.

The CBN chief had announced that out of the N3.23 trillion currency in circulation, N2.73 trillion is outside commercial banks’ vaults.

Emefiele planned to recover the naira that are not in the banking system, however, he prompted persons hoarding the naira to exchange it for dollars.

According to Moghalu and Gwadabe, this policy only encourages more naira to chase few dollars, leading to the value of USD to skyrocket, as illegal hoarders will patronise the black market rather than the bank.

“People who are holding huge amounts of cash outside the banking system for nefarious reasons will go to the parallel forex market to buy hard currency, putting further downward pressure on the value of the Naira as too much Naira will be chasing too few dollars,” Moghalu said.

Cash withdrawal policy: According to the Bureau De Change operators’ President, “One of the unintended consequences of the cash withdrawal limit is the return of public rush to substitute their naira to greenback which is putting pressure on the exchange rate of the local currency before the effective date.”

His statement echos the opinion of the former central bank deputy governor, even though both are speaking on different policies.

The decision to redesign the naira and reduce cash withdrawal are intertwined, meaning the outcome favours the hoarders of dollars, and not the Nigerian economy.

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