Financial and Economic experts have been suggesting ways out of the continuing depreciation of the Naira, the Nigerian currency, saying r eduction in importation of non-essential goods and excessive frivolous foreign t r ips by politicians and government officials have had a negative impact on the va l ue of the local currency.
“Until, we reduce our penchant for foreign consumption and the love of our leade rs to, at the slightest opportunity, travel to foreign lands, I do not see the N a ira becoming stronger against major international currencies again,” Godwin Ude, a financial expert with a stock broking firms in Lagos, South West Nigeria, told PANA.
“Some of those imports that are not important should be cut. When the Government officials and politicians junket around the world, it is the naira that will be used to exchange with dollar or other currencies. Most of our imports are also p a id for in dollar not to talk of other payments such school fees, medical bills a n d bogus travelling. All these put unnecessary pressure on the naira,” Ude added.
He said also that capital flights by way of Nigerians buying up dollars with Nai ra and moving it offshore because of the fear of the unknown, which became rampa n t in October 2008 when several billions of dollars were bought through the burea u x de changes and the financial meltdown that also resulted in foreign investors w ithdrawing huge sums from the economy to settle pressing financial needs at home , were partly responsible for the naira depreciation.
Some money market operators also believe that the high demand for dollars was be ing driven by importers and portfolio investors taking money out as the credit c r unch persisted. They said huge demands for dollars without a corresponding suppl y of the same currency had led to massive depreciation of the naira.
“It is also fuelled by banks, businesses and individuals shifting their balance sheet out of naira into dollars,” one official of a leading commercial bank who s poke on condition of anonymity said.
But the Central bank of Nigeria (CBN) attributed the collapsing naira at the int er-bank market to currency speculators who buy and hold currency to sell later t o make more profit. The apex bank has therefore been taking steps to address the s ituation.
Bureaux de changes are places where people walk in to buy and sell foreign excha nge.
“I can see where the explosion in the market is coming from .They shouldn’t oper ate through statutory allocations from the Central Bank. We will introduce measu r es to stop all speculative acts,” CBN Governor, Professor Charles Soludo, told m e mbers of the National Assembly who wanted to know what the apex bank was doing t o halt the depreciation of the naira.
But the bureaux de changes operators are not folding their arms either. They bla med CBN for the situation. “The exchange rate at which the CBN is giving on the d ollar is too high. They are selling to us at the rate that we cannot but sell ve r y high,” Garba Mohammmed, a bureau de change operator in central Lagos said.
The naira which has remained relatively stable in the last two years started dep reciating towards the last quarter of last year against major international curr e ncies particularly the dollar.
For instance, in early December 116 naira exchange for one United States dollar, but the end of that month the naira had further depreciated as it exchanged for 130 naira to the dollar. By last week, one dollar now exchanged for 150 naira, w h ile pound sterling exchanged for 225 naira, the euro exchange for 201 naira and t he Swiss Franc 134.22 naira.
According to the CBN website, corporate funds are massively moved out of the cou ntry. No fewer than 13. 9 billion dollars were repatriated within the spate of e i ght weeks between last year September and November. By the end of September 2008 , about 757 million dollars had gone out, two months later in November the figure increased to 1.262 billion naira.
These have resulted to the crash of the naira exchange rate. The capital flights also resulted from business travels, allowances, personal travels allowance and direct remittances among others.
As a way out of the Naira depreciation, the CBN last week announced the suspensi on of the Wholesale Dutch Auction System of the foreign exchange (FOREX). In its place the apex bank has introduced the Retail Dutch Auction System (RDAS).
According to Soludo, while it is desirable to allow the exchange rate to adjust in response to market forces, the CBN remains determined to restore stability in the market.
Speaking shortly after the meeting of the Monetary Policy Committee (MPC) in Abu ja last Wednesday, Soludo insisted that the current depreciation of the Naira is speculative as players in the FOREX market do not usually have the cash to back t heir high dollar request in most cases.
Under the new scheme bids for the purchase of FOREX must be cash-backed at the t ime of the bids. The apex bank has also promised to publish purchases of foreign exchange by banks on behalf of their customers in the national dailies fortnight l y. With effect from Monday the FOREX net open position of banks will be reduced f rom 10% to 5 %.
The CBN has equally made it known it would to clamp down on “round-tripping” amo ng banks. This is a situation whereby banks source dollars at the official rate f rom the apex bank and later sell the currency at the inter-bank market at a prof i t. Any culprits found would be banned from the currency market.