In the world of currencies, the cheapest and weakest currency at present is Iranian Rial, exchanging at 42,300 Rial for US$1. The Top 10 cheapest currencies, according to Forbes, include currencies of countries like Vietnam, Laos, Sierra Leone, Lebanon, Indonesia, Uzbekistan, Guinea, Paraguay and Uganda. When you check these countries, the common denominators are very poor and unstable economic growth, high inflation, high unemployment, hefty debt profiles, narcotic smuggling, money laundering, political instability, untamed corruption, and economic sanctions.
The poor economic denominators identified above, as witnessed also in other countries with weaker currencies, will always give birth to thriving parallel markets as a result of excess demands where supplies are lacking. Especially in an economy where local production is practically non-existent, exchange rates affect costs of goods and services; and where a country relies so much on goods and services produced in other countries, and such a country floats its currency, it is certain that the currency value will move about in response to supply and demand factors. Also, where supply of forex cannot meet legitimate demands, it will lead to a boost in parallel market activities. In addition, unpredictable exchange rates will give market players undue opportunities to profit from trading in foreign currencies because it is certain that a floated currency without sustainable supply windows will turn the country’s currency to a speculative currency. In the piece titled ‘What Is Money’, written by Irena Asmundson and Ceyda Oner and published by International Monetary Fund, Finance and Development, the duo declared: “If people start expecting that prices will continue to rise, they may increase their own prices even faster. Unless the government acts to rein in expectations, trust in money will be eroded, and it may eventually become worthless”. When trust is eroded, it means a loss of confidence.
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A loss of confidence will push market players to demand more for foreign currencies or other means to store value at the expense of the local currency. According to Dr Aminu Gwada, the president of Association of Bureaux De Change Operators of Nigeria, as published by Daily Post the constant depreciation of Naira is as a result of loss of confidence in the local currency. This being the case, one is quick to ask: what percentage of daily forex demands qualify as ‘legitimate demands’?
Now to the issue of legitimate demands. What is being done by the Central Bank of Nigeria to establish what is legitimate in forex demands and what demands are illegitimate, frivolous or outrageous or sheer criminal demands? How is CBN tracking the demands made by manufacturers of products for inputs and machinery imports, as well as profit and capital gains repatriation by foreign investors? What measures are being taking to check foreign goods patronages by Nigerians, speculators? What about the activities of currency speculators, hoarders, supply mopping and activities of those who have turned foreign currencies to legal tender in Nigeria? Some elites prefer transacting in dollars in Nigeria, not a few products and services are sold and bought in foreign currencies in Nigeria. What is CBN doing about this? Are these transactions also ‘legitimate demands’ when those engaging in the acts come to the markets to ask for the forex? On supply side, should it be government only, through the CBN, that should be bringing money into the market for sale in the name of defending naira? Can CBN sustainably match the demands? For how long can CBN do this? What is the government doing to really boost supplies from other sources especially through the private sector economic activities?
According to Hope Moses-Ashike in his published piece, Economics of FX Black Market, “black market has gained more popularity up to the point of overshadowing the official foreign exchange market. This has led to a lot of concerns as to who are the black market operators”. In providing answer to his question, he wrote, they (black market operators) are “Nigerians who make a living through money exchange outside the purview of the regulator, the Central Bank of Nigeria (CBN). They speculate and profit from the premium between official and unofficial markets”. He also quoted the immediate past CBN Governor to have said that the unofficial market is ‘a tainted market where people desire to deal in illegal foreign exchange transactions, including sourcing of FX cash for purposes of offering bribes and corruption’ deal.
If the above is correct, what measures are being taken by the authorities to check the market atrocities that is making real sector activities a very difficult and highly suicidal adventure? What are the market stabilization tools to fight the carefree, profit-driven direct and indirect forex market players? Are there some market players whose activity is to mop up supplies and create deliberate scarcity through hoarding? And are there some highly placed, among those in the same authorities, who have turned the forex market to their own cash cows? How did they emerge and why are they able to thrive in the nefarious business deals?
Ola Emmanuel is a business planning consultant
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