It might ordinarily be deemed to be one of its core functions. The Central Bank of Nigeria (CBN) revealed in its third-quarter economic report, that it injected $4.37bn into the foreign exchange market in the quarter as part of efforts to ensure the stability of the naira. But it not only brings to the fore those underlying issues that continue to challenge the capacity of the apex bank to effectively administer monetary policy, it leaves, yet again, the hard question, the forces fuelling the unexplained surge, particularly at a time the economy has remained on a slow cruise.
We do understand that these are difficult times for the economy, not least the apex bank that must at once contend with the dwindling rate of forex accretion in the environment where the demand for forex continues to surge. Unfortunately, if we understand the exigency under which the apex bank is forced to play ‘saviour’, not so its ‘obsession’ with saving the naira.
In the first place, we have said that there is no such thing as magical value of the naira; indeed, the illusion that some phantom market forces will somehow play at a time when supply is not only severely constrained ought to have been long gone. Is it the value being driven by the hordes of speculators on the streets, whose activities the top bank has long admitted does much to undermine the naira? The same parallel market of which some, notably the international monetary agencies, suggest that the CBN take a cue from?
Moreover, in a country where those with clout have no compunction about fuelling the instability in the forex market for private gains, we have long stated that some of the controls put in place by the apex bank are not only necessary but inevitable. In fact, the CBN has very little choice; the alternative would be a run on the reserves by speculators disguised as investors.
Of course, it goes without saying that the country is in dire emergency, so the measures should reflect that. From the pre-COVID-19 level of $36.38 billion in February 2020, the foreign reserves has suffered a mixed fortune – plunging into its lowest depth of $33.44 billion in April before peaking at $36.4 billion in May. Ever since, it has maintained a steady course of decline standing at $35.360 billion in December. Given that oil prices are yet to fully recover, and demand, which has remained sluggish seems unlikely to pick up appreciably in the near future, any suggestion of the CBN letting off the hold would be unrealistic.
Which is why the idea of ‘defending’ the naira would appear to come to no issue; if anything, the apex bank should be more concerned with forex prioritisation – ensuring that the critical sectors get just enough forex to get going and to ensure that the economy continues to operate on even keel. We have earlier called for a framework under which those in the aforementioned categories are availed their forex needs. It seems the best option to pursue in the circumstance.
The irony of course is that the Federal Government hasn’t shown enough commitment to ‘defending’ its own remit – the real sector. Had the government done as much as the CBN to defend its turf, we would probably be talking of substantive changes in the operating environment. Most certainly, we wouldn’t be dealing with a situation in which it would be cheaper to ship goods from China to Lagos than to move the cargo from the ports to warehouses within the state.