Sobowale On Business

May 20, 2024

Exchange rate: CBN faces reality


“You can’t bully reality.”

By Dele Sobowale

Federal Government officials, ignoring the truth and chasing shadows, have been warned several times on these pages – particularly when they manage their offices as if might is right. The first time was in 2006; when Professor Ojowu as  Obasanjo’s Chief Economic Adviser, CEA was reporting on the Nigerian economic situation which was mostly favourable to the FG until he reached the section on poverty alleviation. Obasanjo, who was seating, beaming with pleasure suddenly got up and angrily stopped Ojowu from continuing his presentation.

The report had declared that 70 per cent of Nigerians were still living in various stages of poverty seven years after OBJ had vowed to tackle corruption and poverty head-on. Ojowu was ordered to go and do a better job.

  Ojowu returned a few weeks later with a revised version claiming that only 35.5 per cent of Nigerians were living in poverty after all. That denial of reality prompted my article in which I pointed out that all international and domestic institutions were in agreement that 70 per cent was the correct figure and not 35.5 per cent. I ended the article by telling Obasanjo that “you can bully Ojowu, but, you can’t bully reality.” History would record that the percentage of Nigerians living in poverty has never been less than 60 percent since 1999.

“Brute force without wisdom falls by its own weight.” Horace, 65-8 BC.

  The recent attempt by the Governor of the Central Bank of Nigeria, CBN, to force the exchange rate to under N1000/US$1 was just another example of Nigerian government officials wanting to use brute force to achieve goals which the realities of the economy will not allow. Shortly after resuming in office, he started exhibiting all the traits of those who unexpectedly had greatness thrust on them by sending out a series of ill-considered regulations. Ably supported by the Economic and Financial Crimes Commission, EFCC, as well as the Department of State Services, DSS and the Police, several operators in the foreign exchange market were arrested and their shops closed down for un-stated crimes committed. New regulations were churned out at the rate of two a week; some were reversed shortly after. Eventually, the CBN started dictating the buying and selling prices for dollars to the market. That was a blunder.


“A means by which the exchange of goods and services takes place as a result of buyers and sellers being in contact with one another, either directly or through mediating agents or institutions.” Britannica.

Almost invariably, markets in any economy are characterised by bargaining between buyers and sellers with very little interference by governments. Millions of sellers and buyers approach the market ready to deal; and prices are determined by bargaining. Very erudite but mistaken commentators often convince themselves and others whenever there is a sudden rise in the prices of certain goods and services by asserting that the market has failed. So, the call is made to the government to control the prices of those items alone. Nobody calls for government control when there is excess supply and prices fall. Nobody, for instance, asked for FG control when the exchange rate was N0.70/US$1.

So, why now? The answer is simple. Nigerians are bad losers. We want our political party or team to be declared the winner all the time. We did not arrive at exchange rates of over N1000/US$ by accident. Eight years of high fiscal deficits, borrow-and-spend economic policy, low dollar revenue on account of low crude oil export and negative balance of trade got us here. Added to that were money laundering by top government officials through BDCs; and finally, our misadventure with Binance and blockchain technology (that is a story for another day). Influential Nigerians, drug barons, arms dealers and backers of terrorists and human traffickers all availed themselves of the opportunities available to trade in dollars and push exchange rates up. All the forces are still very active today despite all the media hype by the EFCC.   When CBN was busy churning out instructions in a desperate bid to force down exchange rates, I warned the nation in an article in March 2024 with these words.

“Unfortunately, the new monetary policy Czar, Cardoso, who has exposed a lot of what went wrong before, is adopting the same dictatorial powers in order to show results. Several of the initiatives announced strike some economic and financial experts as being akin to a surgeon cutting off a patient’s head to cure his headache. Most importantly, Cardoso has frequently been economical with the truth. His propaganda machine will eventually crash on the solid rock of truth. Let me start with the exchange rate control mechanism…..

The intervention itself raises more questions than it answers. Two will be addressed now. One, is the $10,000 allocated to BDCs to become a monthly allocation or a one off intervention? Two, will the directives regarding buying and selling prices apply only to CBN’s allocation or does it govern all foreign exchange irrespective of source? If not, at what rate will autonomous funds be bought and sold? The repercussions of this measure will soon become apparent. Certainly, the private sector will find it difficult to live with the CBN straight jacket. Very soon, multiple rates will emerge again.”

“In times of victory, prophets are unnecessary distractions.”   Trevor Roper.

I am accustomed to being ignored by CBN Governors; but I always laugh last. When Cardoso continued hammering stakeholders in the forex market and drove down the exchange from N1800/US$ to N1000/US$, a regular reader who had dumped half his dollar stock called me to make a statement and ask a question. He accused me of misleading readers that rates will stay above N1000/US$ this year; now it might get down to N800/US$. He then asked me if he should sell everything. I told him to stop selling; that the CBN’s bully tactics will soon hit a brick wall and rates will shoot up again. On May 8, my 80th birthday, he sent me a message and a gift – exchange rates were close to N1400/US$. He would have lost millions of naira. There was more to come.

“Naira defies CBN’S interventions, regresses to 1,501/$

BDCs say dollar not available, seek amnesty for hoarders

DAILY TRUST, MAY 12, 2024.

Now that bullying has failed and reality has set in, perhaps the FG and CBN will listen to reason. Nigeria went from worst to best and to worst in two months. WHY HAS CBN FAILED IN ITS FIRST ATTEMPT?

“The one thing that is necessary in life, as in art, is to tell the truth.” Tolstoy.

The CBN, as well as economists and financial experts had known for more than a century that a nation’s exchange rate is fundamentally a function of its balance of trade. A nation’s currency is stronger if it exports more than it imports; it weakens when there is a balance of trade deficit. And, the longer the deficit continues the weaker the currency. Nigeria in the last ten years has experienced a balance of trade deficits every year even till today. The exchange rate would have been worse if not for the autonomous influx of dollars and pounds. Cardoso has stopped them from coming into the country. CBN funds the market alone. There is acute scarcity of dollars now.

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