Opinion
[Ugoji Egbujo] Forget The Drama: The CBN is complicit
By Ugoji Egbujo
The CBN is suddenly running helter-skelter. It’s a pitiable sight. A regulator running around like a motor boy throwing wooden wedges to stop a bolekaja from rolling down a hill. Ironically, many are clapping for the CBN, which is fiddling with the barricades after many horses have bolted.
It’s all the heart-wrenching coming after Mad Meffy. Meffy and his mad years should have been sufficiently cautionary. So, after pushing out the Mad Meffy, the CBN management that came to restore hope ought to be alert, fairly shrewd and constrained. But for months, it slept on duty and allowed the banks to exploit porous regulations and grow parasitically fat on a troubled economy. This is the benign interpretation.
Because the idea that the CBN was so inept or negligent that it could not notice or stop banks from warehousing dollars to undercut the system is preposterous. Columnists had written, traders had screamed. It was a monumental economic sabotage happening in daylight. Therefore, the role of the new CBN management must be investigated, or studied instead, if the government will feel embarrassed. However, the more plausible interpretation is that the CBN was complicit.
In December last year, the naira traded at about 1000 per dollar at the parallel market. To get to that depth of 1000, the naira lost nearly half of its Parallel Market value in six months. This steep fall should have startled the CBN. It was a hopeless fall. In those six months, the banks freely undermined the new fragile floatation system. The watchdog was aloof. By the end of January 2024, the naira had slumped altogether.
The CBN watched the unprecedented and precipitous fall of the naira and did nothing. Some days, the naira casually lost 50 naira or 5% of its value. The CBN was not perturbed to look out for open holes. It went to Davos in January to plead with the World Bank for a loan of N1.5 Billion to stabilise the naira. There, it argued loudly that it had, with its reforms, earned the right to the cheap loan. But at home it allowed banks to trample on the naira. Was the CBN sleepwalking?
All the foreign loans CBN had taken to stabilise the naira were washed away by sharp practices. They achieved nothing because they ended up in banks’ warehouses. Under the nose of a beleaguered CBN, the banks left banking for currency speculation. Without the CBN keeping a keen eye on the system , and without the CBN having the ability to saturate the market, unscrupulous players would have a field day speculating. As the CBN continued to scavenge for crumbs, the banks mopped them, tightening the noose on the naira. The CBN can’t claim ineptitude. So it must admit complicity. The troves of dollars coming out of the big banks after the ultimatum indicts the CBN.
When the Federal Govt decided to float the naira, it received applause. Those who clapped believed the government understood the waters it had chosen to swim in. It didn’t test the waters foot by foot. But it’s now manifestly clear. The CBN went in blind. And swam with its eyes closed. With the albatross of forex illiquidity, the previous government left, and the new CBN management should have been apprehensive. And it should have bothered about the enormity and scope of the challenges.
A huge backlog of uncleared obligations was a bad indicator. It left the bank’s inability to respond to hiccups visible to gamblers. So, the CBN should have known beforehand that greed would complicate the mess and stay awake to plug holes. But the CBN went to sleep. The banks collected dollars and kept them in their vaults, creating an artificial scarcity, engaging in criminal racketeering. The CBN knew that forex illiquidity would create criminal opportunities. The bank knew the banks around here had a chronic predilection for exploiting such opportunities. So what did the CBN do to forestall it? Practically nothing. Until the naira fell below 1500 and a social disruption loomed.
In other words, the CBN, having allowed the anaemic naira to go into this open fight without food, without any reasonable prospect of sustained forex transfusion, didn’t even bother to protect against racketeers and artificial local demand that would distort, corrode and damage the system. The CBN can’t play ostrich. Many commentators had cried out. Banks had made dollars the underground currency. Banks were converting their naira to dollars. What did the CBN do? It snored till the fallen naira rolled into an abyss. Now, it has remembered that it has the power to regulate the banks and other financial institutions. It wants the banks to bring our troves of dollars they accumulated at 700-800 to sell them at 1400 in the official market. The CBN must tell Nigeria who it works for?
The consequences are not theoretical. The price of cement has jumped through the roof. It increased 20% in the last week. Food prices have skyrocketed. Drugs are out of reach. The masses are in real peril. Hotels are running into bankruptcy because of fuel costs and low patronage. The CBN must understand that the criminal failure to monitor the exchange rate with the eyes of a vigilante has damaged the economy and ruined livelihoods. Inflation has soared. Hunger has peaked. Youth unemployment will reach new heights. Many more youths will japa.
Now that the CBN has woken from slumber, can it be trusted to be thoroughly diligent? It’s unlikely the federal government will bother to learn anything from the failure of the CBN in the last 9 years. It’s been absolute shambles. The banking system enables all kinds wayo and wuruwuru. The CBN will make noises for two weeks but may not bother to sanitise the system. But we can let sleeping dogs lie. Our situation is perilous but not irredeemable.
First, we must solve forex illiquidity. The CBN must maintain the leash on the banks, and the federal government must find an injection of a substantial volume of dollars. The idea is to stop the haemorrhage while improving transfusion. So, crude oil theft must be controlled. The president must give ultimatums to the security chiefs. It can’t be overemphasized. The impunity must end. There must be consequences for success and failure. If we can’t boost our forex position and stop the madness in the banks, then we must take the fall.
This opinion piece was first published on Vanguard.
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