By Victor Ogiemwonyi
In the last 4 weeks, something good, a silver lining if you like, has began to happen to the strength of the Naira. From a steep valuation dip to N1,900, it has recently regained lost ground and currently stands at N1,300 to the Dollar.
Whatever, policy instrument(s) ramping up it’s value upwards is evidently good policy and should be encouraged and supported by all.We need to be consistent in our policy making and we must stay the course and give credit to current CBN actions
The credibility of the CBN is critical to their performance and execution of their remit.
Against backdrop of their arrest of the free-fall of the Naira, that credibility has been given a boost. The positive actions of the new team at CBN and the ministry of Finance, have been acknowledged by a wide consensus of opinion leaders and talking heads.We are glad they are delivering so far and that momentum must now be sustained.They should now aim for economic growth supported by a fairly stabilized Naira.
Some of the steps taken so far, indicate that they have a good handle on what needs to be done.
Aligning the Naira currency was sound monetary policy. No matter what difficulties it has brought in the short term, I believe the benefits ahead, will in the long run make us forget the current woes.
The new beneficiaries of the aligned Naira, are the States and local Governments, who now get a much larger share of the new Naira value at their FAAC allocation. It is expected that the uplift will trickle down to better provision of services to the people.
I have always advocated the benefits of policy consistency and in addition, held on to the conviction that it was best to let the market determine the value of the Naira even if we have to experience a situation of worse before better.There are those who argue that these are the IMF and World Bank prescriptions, but I counter-argue that these are simply rationality and logical economic positions as we can not have multiple exchange rates for the Naira. It does not help our economy in any way and any benefits of such an Fx regime only goes to a very small group of people
The CBN has also been pragmatic in pushing Interest rates up, in its last two MPC meetings and we are already seeing the gains.
The need for interest rates to go up temporarily for now, is understandable. It is another “no alternative“ option
Given that inflation is at its highest for several years and complicated by massive liquidity in the economy, this is the only effective measure to squeeze out the excess liquidity in the economy at this crucial time.The excess liquidity in the system is what is pushing inflation up and stoking the FX demand.
Any one who is familiar with my previous writings on the subject, knows that I am not in favour of high interest rates. I have always preferred growing out of inflation, as the preferred option, but the current inflation rate at 30%+, requires high interest rates to be near the real rate of return, to attract investments into the economy. Our ideal aspiration should always be to have the real rate above inflation.
Over and above any other measure, that the CBN has taken, it is the Binance issue that has resonated very strongly. Since Binance, took out Naira from its trading Platform, its positive outcome has been obvious for all to see thus far.
In many jurisdictions, Binance has been denied a platform to trade. The UK, China,Japan, Malaysia, Thailand and the province of Ontario in Canada, have all said no to Binance trading in their jurisdictions.
It has also been charged with offenses of money laundry in the US, where Binance has pleaded guilty to those charges, and accepted to pay a Fine of $4.3bn.
They have also been charged with conspiring to run an unlicensed money transmitting business , and violating Banking laws in some other jurisdictions.
The CBN’s attention was drawn to the significant role, Binance was playing in the Naira devaluation. A $26bn value of Naira traded on Binance, in a very short period , in the world’s biggest Cryto Exchange , points to the obvious manipulation and speculation that was going on. Let me note here, that whatever happened, it was Nigeria’s bad Financial policies that enabled it.
The issue now, is what to do with Binance and what case can be made against it, for its injury to our economy from the trading that went on. I do not stand with those who say Binance has done nothing wrong. Even if not by commission, most definitely by omission. The Trading Platform, is a global Brokerage, like Interactive Brokers and our own Bamboo .
While Binance offers Cryto as tradable Securities , Interactive Brokers , offers Equities, Commodities, and currencies as securities, and Bamboo specifically offers US Equities.
Setting aside whatever Secuirites that are offered, they are all Trading Platforms, with participant Nigerians. Once Nigerian Investors are involved, the Nigerian Government is involved by extension
Since they act like a brokerage, and collect monies from Participants to trade/speculate on its platforms and earns a commission, they are liable to Taxes, at least VAT and they also should have KYC ( Know Your Customer) details. KYC is their only defense, against money laundering, so the demand for its top 100 customers trading from Nigeria, becomes tenable.
KYC is meaningful when it is required in an unusual circumstances, as in the case of what has happened to the Naira.
The other two Brokerages mentioned here, both require KYC and also, collect taxes, as part of the transaction costs. There is therefore no basis for Binance to go without sanctions.
It is heart warming that the charges brought against Binance, have been thoroughly reasoned and there was no need to go overboard.The next step would be to allow the courts set bail and free the Binance Executives, held under house rest. We should act according to globally accepted legal standards and allow the courts to discharge their duties and if they think they can escape Justice, remind them about the PIID case, where Nigeria got justice in the courts in the UK.
Stabilizing the Naira.
The way to stabilize the Naira requires a multilevel approach.Firstly, is to build up our FX Reserves, having a healthy Reserve, gives trading partners confidence. We also need to promote Exports, reduce imports and increase our Oil production. Any thing short of improving these measures, will be sub-optimal in dealing with our currency troubles.
We also need to cut waste and cost of Governance, with a much more purposeful fight against corruption. These actions will give confidence to investors to invest in Nigeria.
Victor Ogiemwonyi is a Retired Investment Banker and writes from Ikoyi Lagos.
