Federal Government, Central Bank of Nigeria (CBN), and NNPC: Accused of Engaging in Forex Manipulation

In a notable quote attributed to I.F Stone, he once remarked that skepticism should surround government claims, citing their propensity for misinformation. This sentiment resonates with recent events regarding Nigeria’s exchange rate. On August 15, a sudden announcement from the Central Bank of Nigeria (CBN) sent forex speculators into a frenzy. The exchange rate, which had been tending towards N980/US$, saw a sharp drop to N760-790/US$ on Broad Street. Amid the chaos, questions arose about the credibility of government measures to stabilize the situation.

The history of government interventions in Nigeria’s exchange rate paints a picture of repeating patterns. The latest instance came with the Nigerian National Petroleum Company Limited (NNPCL) securing a $3 billion loan from the Afrexim Bank to address the fluctuating exchange rate. However, experts remained skeptical about the effectiveness of this move.

The intervention was viewed by some as a mere gimmick, reminiscent of past attempts to control the exchange rate. Previous interventions under Emefiele’s leadership had shown short-lived improvements, followed by a resurgence of depreciation. This pattern cast doubts on the ability of the CBN and government to truly influence exchange rates in a lasting manner.

The Bureau De Change operators, often targeted by the CBN’s efforts, saw through the facade. They recognized the limited impact they had on market-driven exchange rates. The interplay of supply and demand was the real determinant, regardless of regulatory measures. The government’s attempts to shift the blame onto these operators served only to mask their inability to address the core issue.

Critics questioned the $3 billion intervention’s potential to make a substantial difference. They argued that the amount was a drop in the ocean compared to the massive foreign exchange requirements of various sectors. Foreign airlines, manufacturers, banks, and other entities were projected to require over $200 billion in the coming months. In this context, the $3 billion loan seemed insufficient and short-sighted.

Furthermore, the NNPCL’s reliance on this loan to stabilize the exchange rate raised concerns about its feasibility. Once the $3 billion was spent, the obligation to repay the loan, along with interest, loomed over the horizon. This development indicated a temporary solution at best, one that failed to address the root issue of earning adequate foreign exchange revenue.

Nigeria’s exchange rate problem boiled down to revenue generation. Despite favorable crude oil prices, the country’s plummeting crude production hindered capitalizing on the situation. The government’s focus on expanding its payroll rather than revenue generation also posed challenges. Expert suggestions included practical measures to boost revenue, potentially yielding up to 15% more income.

In the end, the prevailing sentiment remained one of skepticism. Government interventions, often touted as solutions, had repeatedly fallen short of achieving lasting stability in Nigeria’s exchange rate. As history suggested, the intricate web of challenges required a more comprehensive approach than quick-fix interventions.

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