The management of the foreign reserves by the Central Bank of Nigeria CBN leave many questions unanswered.
If US Dollars USD exchanges for N516 on the streets of Nigeria and the CBN “legally” allocates USD to Nigerians at N375 with the federal budget priced at N305….does anyone need a PhD in advanced economics to see what will happen?
We just borrowed $1b at 7.88% from the Eurobond markets. The CBN now proposes to give twenty banks $20m weekly to fund PTA, Education and Medical requests by bank customers…lets do the maths.
20 banks get $1m weekly is $20m, which translates to $80m a month or $960m a year! So in one year CBN will give $960m to banks at N375 to $1.
I have many questions.
- Why N375? why not $1 to N1?
- why borrow at $1b at 7.88%, when the CBN can “share” $960m in one year at a loss?….should the FGN not simply issue a dollar denominated Treasury Bill at 3% to CBN? rather than pay 7.88%
- We hear manufacturers cannot get $ to pay for inputs…..is PTA a good spend of oil $? . To be clear, PTA is ok but at N375?
- How does CBN stop round tripping?
- Does the job of the CBN include allocation of dollars to banks?
However the CBN does not need to allocate dollars if it simply lifts the Capital Controls and allows anyone sell dollars directly to Nigerians at market determined rates. If a Nigerian in Houston want to remit $100 and CBN allows that exchaneg to take place at the market determined rate, the supply of dollars to the CBN interbank market will increase, and the Naira will gain strength.
As long as CBN insists on dollars being exchanged officially at N315 (when the market says N516) then no one will remit USD through CBN, and the interbank market will crash due to weak supply. its that simple.
