Onwuamaeze dike
A former deputy governor of the Central Bank of Nigeria (CBN), Dr Kingsley Moghalu, yesterday revealed that attacks by currency speculators had affected the value of the naira.

CBN Governor Godwin Emefiele on Friday promised the umbrella bank would hunt down and get AbokiFx founder Oniwinde Adedotun to book for alleged currency speculative activity “which amounted to economic sabotage.” .

Emefiele said that Adedotun carried out nefarious and criminal activities on the Nigerian economy by engaging in forex speculation in violation of CBN law, which gave the umbrella bank sole responsibility for determining the rate of the Naira.

Moghalu, who was deputy governor of apex bank from 2009 to 2014, wrote on his Twitter account yesterday that speculation had affected the value of the naira,
Moghalu pointed out that there are “currency traders in the world for whom the weakness of a currency is their very good fortune”.

He revealed that these traders “attack” these currencies for profit, especially when the currency uses a fixed official exchange rate determined by the central bank instead of the market.
Moghalu listed the factors that affect the value of the Naira to include “supply and demand (if too much of the Naira runs after scarce dollars, the dollar becomes stronger against the Naira, and vice versa)”

“Others are inflation (a high inflation economy like Nigeria’s weakens the value of legal tender), high government debt again, our case in particular relative to our income and capacity. to pay which will be stretched as we borrow on low incomes, and 90 kobo on each L1 goes to debt service).

Although the former vice governor did not mention Aboki FX, he said, “Speculation also affects the value of the naira, as there are traders in the world for whom a currency’s weakness is their very good. fortune.
“Such traders attack these currencies for profit, especially when the currency uses a fixed official exchange rate determined by the central bank instead of the market.

“As the Naira is effectively officially pegged to a reserve currency (dollars, euros, pound sterling), speculators can attack such currency for profit if the country (Nigeria in this case) is perceived to have reserves of changes insufficient to meet demand. .
“Because our inflation rates at 17% are much higher than those of these reserve currency countries, we are once again exposed to possible currency attacks.

“If reserves are low and demand for dollars massively exceeds supply, currency devaluation is inevitable and traders who launch speculative attacks profit from this devaluation.
“Such traders will borrow the Naira from Nigerian banks, convert it to dollars, for example, and then buy Nigerian bonds at short notice. If, as speculators predict, the central bank devalues ​​the naira, traders sell the bonds in foreign currencies, convert them into naira, and repay their original loan.

“The greater the devaluation, the higher the profit for the speculator. What should we do about all of this? As I said before, and I will say it again, we have two options. One is to let the Naira find its level in the market – in order, in words, by subsidizing the currency.

“While there is likely to be an immediate rise in the dollar’s price, this move will have two benefits. The first is that because Nigeria has a large and profitable economy and market, dollars are likely to overwhelm the market in search of profit for investors.

“When that happens, the laws of supply and demand will work in the naira’s favor. At the same time, maintaining different exchange rates for different types of transactions must cease. This is called rate convergence.
Moghalu also recommended that one of the best ways to strengthen the naira is to put in place the “right trade policies to support and create such incentives for massive exports of value-added finished products from Nigeria.”

“The second, and most important, advantage is that, since the current practice of the CBN of pumping dollars into the foreign exchange market (from reserves, which also depleted them) is essentially an import subsidy, which made Nigeria more and more important. dependent, the abandonment of the subsidy on the Naira will refocus the economy towards exports.

“This will create an incentive for complex production of a quality that can be competitive in the international market. This must be accompanied by good trade policies to support and create such incentives for the massive exports of value-added finished products from Nigeria. “
Emefiele had also accused Adedotun of “speculative activity on the naira”, adding that he had to explain how he obtains his tariffs.
However, following threats from the CBN governor, Aboxi FX said he would no longer provide daily exchange rate updates and hoped the naira would stabilize.


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