Concerted efforts of both the monetary and fiscal authorities may quicken the naira’s recovery pace of its true value against other foreign currencies, writes JOSEPH IN0KOTONG.
The Central Bank of Nigeria (CBN) Governor Olayemi Cardoso has become a cynosure of all eyes lately, not because of his handsome babyish face, but due to the hurdles before him and Nigerians’ expectations thereof.
No day passes without either the mention of his name or a discussion in hushed tones on the Naira’s value. The anxiety is understandable, and the apprehension may be permissible in a clime where the real sector is struggling to stamp its feet on worthwhile production ventures for export.
The bulk of Nigeria’s basic needs depends on importation. In this situation, the exchange rate value of the Naira to other currencies becomes important to both the importers and consumers of goods because the landing cost, which is a function of the exchange rate variables will be reflected on the market price of the imported items.
Realising how the interplay of these economic fundamentals can either positively or negatively impact the growth of the country and the wellbeing of the people, the CBN has rededicated itself to its primary functions of ensuring price, and exchange rate stability.
The recognition of this important responsibility necessitated the initiation of numerous measures by the apex bank aimed at instilling confidence in the system and maintaining a stable exchange rate.
Some of the policy thrusts put forward by the CBN to stabilise the local currency include a decisive step to bridge the widening gap between the official and unofficial exchange rates. This was done by directing all Bureau De Changes (BDCs) operators to sell foreign exchange to end-users at a margin not exceeding one percent above their purchase rate from the CBN.
To actualise this, the apex bank announced its decision to distribute $20,000 to each eligible Bureau De Change (BDC) operator across the country at a rate of N1,301/$. This came more than two years after the suspended former CBN governor, Godwin Emefiele, stopped the sales of foreign exchange to BDC operators in that segment of the FX market.
In the estimation of the CBN, this strategy was anticipated to inject much-needed liquidity into the market and stabilise the Naira’s value. It is also intended to prevent excessive mark-ups and protect consumers from price exploitation.
Similarly, in line with the CBN’s commitment to ensure transparency and stability in the FX market and avoid foreign exchange malpractices, the bank directed all Authorised Dealer Banks to effect payout of Personal Travel Allowance/Business Travel Allowance (PTA/BTA) through electronic channels only, including debit or credit cards. It added that banks should pool cash on behalf of International Oil Companies (IOCs), subject to a maximum of 50 percent of the repatriated export proceeds in the first instance.
In a notice to dealers, the CBN stated, “For the avoidance of doubt, payment of PTA/BTA by cash is no longer permitted.
“Consequently, the CBN hereby directs as follows: the balance of 50 percent may be repatriated after 90 days from the date of inflow of the export proceeds. The above shall be subject to the fulfillment of the following documentation requirements: Prior approval of the CBN for the repatriation of funds under the ‘Cash Pooling’ transaction; ‘Cash Pooling’ agreement with the parent entity of the 1OCs operating in Nigeria; Statement of expenditure incurred by the IOC in the immediate past period relating to the ‘Cash Pooling’.”
The action became necessary because the apex bank had observed that proceeds of crude oil exports by international oil companies operating in Nigeria are transferred offshore to fund parent accounts of the IOCs (otherwise referred to as ‘cash pooling’), thereby impacting liquidity in the domestic foreign exchange market.
Also, the CBN raised capital requirements for BDCs and set other guidelines. Key areas addressed in the revised guidelines include permissible activities, licensing requirements, corporate governance standards and Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) provisions for BDCs.
It announced the minimum capital requirements for BDC operators in Nigeria will be N2 billion for Tier 1 license holders, and added that the requirement for a Tier 2 licence would be N500 million, marking a departure from the previous threshold of N35 million for a general license.
Last week Friday, the CBN announced the revocation of the licenses of 4,173 Bureaux De Change (BDC) operators due to a lack of compliance with necessary regulatory provisions.
Sidi Ali, Hakama (Mrs) Ag. Director of Corporate Communications, who broke the news via a press release said the exercise conformed with the powers conferred on the CBN under the Bank and Other Financial Institutions Act (BOFIA) 2020, Act No. 5, and the Revised Operational Guidelines for Bureaux De Change 2015 (the Guidelines).
The statement read in part, “The affected institutions failed to observe at least one of the following regulatory provisions: Payment of all necessary fees, including licence renewal, within the stipulated period in line with the guidelines; Rendition of returns in line with the guidelines; compliance with guidelines, directives and circulars of the CBN, particularly Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT) and Counter-Proliferation Financing (CPF) regulations.”
The CBN is revising the regulatory and supervisory guidelines for Bureau de Change operations in Nigeria, and compliance with the new requirements will be mandatory for all stakeholders in the sector when the revised guidelines become effective.
The CBN has rolled out many policies targeted at arresting the fast depreciating value of the Naira against the dollar and other foreign currencies. The outcome of these measures can aptly be described as a potpourri of sorts – positive and negative.
The Naira gained strength at times and depreciated in another breath.
Data from FMDQ showed that last week Thursday, the exchange rate of naira to the dollar at the official foreign exchange market and the parallel market widows have narrowed to N85.11, indicating that the local currency strengthened to N1,595.11/$1 compared to N1,609.51/$1 which it closed at, on the official market. It also firmed up to N1,510/$1 at the unofficial (parallel) market on Thursday from N1,450/$1 on Wednesday according to Bureau De Change sources.
The task of restoring sanity in the FX market is not the exclusive preserves of the monetary authority only, the fiscal authority has a role to play. Perhaps, this informed the decision of the Economic and Financial Crimes Commission (EFCC) to conduct raids against illegal Bureau De Change (BDC) operators in parts of the country, an action some said would worsen the country’s exchange rate situation and not alleviate it.
In its intensified efforts to check currency manipulation, which has been linked to the fast depreciation of the Naira against the dollar, the Federal Government started beaming a searchlight on Binance amid the escalating foreign exchange abuses.
Already, Binance has been reported to have dropped the Naira from its Peer-To-Peer (P2P) market platform amid forex manipulation concerns. The feature, known as the P2P market, allows users, buyers, and sellers to transact without the intervention of a third party.
Mr Bayo Onanuga, Special Adviser on Information and Strategy to President Bola Tinubu claimed that Binance is neither registered in Nigeria nor has any presence in the country, alleging that people used the platform to arbitrarily fix dollar-naira rates, which negatively impacted the value of the Naira.
On Friday morning in an interview with the British Broadcasting Coronation (BBC), he said the Federal Government is demanding at least $10 billion as retribution from Binance, noting that the Binance team was already cooperating with the Federal Government by providing useful information, and had already suspended naira related transactions on its exchange.
Interestingly, the Securities and Exchange Commission (SEC) declared Binance’s operations illegal in 2023, citing its lack of registration in the country.
Last week Tuesday, after the Monetary Policy Committee (MPC) meeting in Abuja, Cardoso, at a media briefing said Binance Nigeria allegedly facilitated the transfer of unverified $26 billion transactions from unidentified sources last year.
Cardoso said, “In the case of Binance, in the last one year, $26 billion has passed through Binance Nigeria from sources and users who we cannot adequately identify.”
He also reiterated the ongoing clampdown on crypto platforms and disclosed the collaboration among federal agencies to curb the foreign exchange rate distortions.
He said, “We are determined to do everything it takes to ensure that we take charge of our market or put it differently to not allow others to manipulate our markets in a way that ends up distortionary and sub-optimises for all Nigerians.”
How currency manipulations could occur on the Binance platform.
Binance is a cryptocurrency exchange and has a platform where people can buy, sell, and trade different cryptocurrencies. It is one of the largest cryptocurrency exchanges in the world, and it supports a wide variety of cryptocurrencies. Some of the most popular cryptocurrencies on Binance include Bitcoin, Ethereum, Litecoin, and Binance Coin.
Experts say it is unlikely that Binance could directly influence the exchange rate of a country›s local currency. However, they added that it is possible that the popularity of cryptocurrencies and cryptocurrency exchanges could have an indirect impact on exchange rates.
This is because when people buy and sell cryptocurrencies, they often need to convert their local currency into another currency, such as the US dollar. This could lead to fluctuations in the exchange rate, but it is hard to say for sure whether or not Binance has a significant impact on exchange rates.
There have been concerns about potential price manipulation on cryptocurrency exchanges like Binance. One concern is «wash trading,» which is when someone buys and sells the same asset to create the illusion of high trading volume. This can be used to manipulate the price of an asset, but it is against the rules of most exchanges, including Binance.
Another concern is the «pump and dump» scheme, which is when a group of people artificially inflate the price of an asset and then sell it off at a profit.
Binance is reported to have policies in place to try to prevent these kinds of schemes, but experts affirmed that they can be difficult to detect and prevent.
In theory, manipulation can occur on any exchange, including Binance. However, Binance is reported to have implemented several measures to try to prevent this from happening. These measures include monitoring trading activity, analysing order book data, and using algorithms to detect suspicious activity.
Binance is also said to have a team of compliance professionals who work to ensure that the exchange is compliant with all relevant laws and regulations. Overall, while it is possible for manipulation to occur, Binance is taking steps to prevent it from happening.
A quick overview of how manipulation could potentially take place on an exchange like Binance, further points to «wash trading». To engage in «wash trading», someone would need to create two accounts on the exchange and use one account to buy and sell the same asset to the other account. This would create the appearance of high trading volume and could be used to manipulate the price.
Another way manipulation could occur is through «spoofing,» which is when someone places a large order without the intention of completing it. This can be used to move the market in a certain direction. Spoofing is a technique that is used to create a false impression of market demand. It involves placing a large order for an asset without actually intending to complete the order. This can cause other traders to react by buying or selling the asset, which can cause the price to move in a particular direction.
The person who placed the spoof order can then cancel the order before it is filled and take advantage of the price movement. It is considered to be a form of market manipulation and is illegal in many jurisdictions.
The effectiveness of the actions so far taken to check the Naira’s manipulations, and prop up its value will be known soon. The Naira may be on the way to recovering its true value against other foreign currencies as a result of these measures by the Monetary and fiscal authorities.