Pegged Exchange Rate: The Calculated Fraud

Pegged Exchange Rate: The Calculated Fraud
February 23 15:29 2016

By Moses Okpogode

[I]t is no longer news that the naira has gone the way of the Somalia Shillings, exchanging at over N400 to $1 USD in the parallel market at some point last week. Fortunately, our security challenges are not as severe as theirs neither have we experienced any of those devastating droughts that have helped impoverished the failed state. The scarcity and shortages in Somalia is nothing like the situation in Nigeria. Here, it’s like heaven when compared. But we can draw parallels from the currencies and that makes the situation of the naira pitiable. It portends a bleak economic outlook for the average Nigerian. It is indicative of all that has gone wrong in the nine months since the start of the change administration.

As a street economist, I wouldn’t want to dabble into the issues bothering on the devaluation of the naira or not but would want to delve into the pinching effects of the current situation we find ourselves as regards  the government’s monetary policy. Despite the fact that naira’s official rate has long been pegged at between N197 and N199 by the government, it has continued on a downward slide because of the market forces at play. While the President has resisted pressure not to devalue the currency, I know the naira has long been devalued with the banks eating very fat from the loose ends made available by the current circumstances. There seems to be a lot of confusion at the Central Bank of Nigeria. For me, it is either there is disconnect between the CBN and commercial banks or it’s a grand conspiracy between the two, which top officials have latched on to impoverish the people that they are meant to serve.

This foreign exchange plague was further even exacerbated by the restrictions on students schooling abroad. Every Nigerian with a bank account received the instructions from their bankers in June, citing a guideline from CBN. There were other announcements informing Nigerians on several other revisions that included the point of sales transactions not exceeding $300 daily and a monthly withdrawal not over $10,000 or its equivalents. There was these other announcement on procurement of Basic Travelling Allowance (BTA) from banking halls… Customers who besieged banks to buy BTA were advised to use their debit cards abroad. The naïve customers accepted all the dogmas read to them only to leak their wounds after a great dip into their pockets were experienced on transactions they made abroad. Outrageous debits were made without their permission and they dare not relate their individual experiences to anyone because they didn’t know whether it was part of the mop up plan by the new sheriff to pull the naira into a steady line.

But that seems to have changed as the naira reached a record high last week. Social media has been awash with stories on how banks have been debiting, deducting and duping their customers without due explanations. CBN asked banks to refund over N6 billion in dubious charges. I don’t know if that is a part of it. The banks also have not come out to claim or deny their newly assigned duties from the CBN as operators in the parallel market after the administration booted out Bureau de Change operators. It is also no longer news that when you use the POS while shopping or make withdrawals with the naira debit cards online and abroad, you are charged amounts contrary to the official exchange rates. Those transactions attract similar, and sometimes higher, rates as those from the parallel market for dollars, pounds or the euro in the popular Wuse Zone 4 black market in Abuja and at the Bookshop House, Lagos. Even our whistle-blower in chief and now Emir of Kano Lamido Sanusi commented about it in an interview penultimate week with the BBC.

The Government may not know it but it is the reality on ground. Pure water sachet is now selling for N20 as against N10 and this is not because there are water shortages in the country. But due to the cost of importing polyethylene, a raw material for making the sachet, which has shot up. An oil producing country is unable to meet up with its local demands on the derivatives from the crude oil that it produces yet the government is not perturbed. It has promised and severally given deadlines at revamping and rejuvenating the obsolete refineries until the Nigerian National Petroleum Corporation finally announced that they have packed up because of under production. But all the government is interested in is stiffening foreign exchange that is profiting a few instead of opening up the productive sector for its young people who need jobs. The government can’t understand why people will source for foreign exchange for the importation of toothpicks yet it is not ready to encourage small businessmen who have genuine funding needs for the import of machinery for small and medium scale production but expects to grow the economy.

While the government is stiffening foreign exchange supply, it is enriching banks and officials positioned to work at foreign exchange desks. I recently learnt that Money Gram staffs are the new brides in town. You pay them almost double the amount of money you want them to transfer abroad for you. According to an insider, a recipient abroad can receive unlimited amount of money in dollars but an individual can only send a specific amount in equivalent foreign currencies to that recipient once in a quarter. So what bank officials do is to detail their relatives to send as much times as possible to those relatives who repatriate the same funds into the parallel market without the fear of the new sheriff in town. It was further explained that there is a time limit for those transfer transactions in the morning on a daily basis so an outsider could check at the banks money gram desks throughout the year, even sleeping overnights at each time without benefitting from the regime.

The desk officer is always having a customer before you call in to make your transactions. It is that bad. Prices of goods including spare parts have skyrocketed with no hope of coming down again, heightening inflation pressure. But for how long will this tarry, even a forlorn hope seems a mirage because there is no vibrant economic team to tackle these economic challenges and provide clarity and direction of economic policies. All we have is widening team of media crème de la crème that specializes in sustaining the sermons of melancholy inherited by the regime and on great poos that will take ages to clean forgetting that the new poos are hot and oozing out great economic stenches that could disfigure the face of change in the coming months.

We don’t need all that right now.