Experts have attributed the sudden appreciation of the naira in the foreign exchange market last week to the interplay of different factors.
A former General Secretary of the Nigeria Labour Congress (NLC), Dr. Peter Ozo-Eson, believes that the pressure on the naira in the unofficial market will be short-term.
He argued that just as the planned re-designing of the naira continues to confuse the populace, so will it cause some distortions in the money market.
Ozo-Eson maintained that the upward and downward movement of the naira is likely to continue till after January 31 when the old naira notes will cease to be legal tender.
It has now turned out that the gaining of value by naira had nothing to do with the false speculation that the United States of America’s Federal Reserve was planning to call back $100 bills by January 2023.
Indeed, it is now clear that currency hoarders stockpiling dollars as a means to evade having to deposit cash into deposit money banks in line with instructions by the CBN to refuse deposits above N5 million for new accounts, N50 million for old accounts, is likely playing an active role in the unfolding naira movement.
Another reason is speculators taking advantage of the sudden hike to make a quick buck, without any consideration for the impact on the cost of importation, and its unintended effects on inflation.
Also, there is a panic of uncertainty from speculators who are not sure of what will happen and are trying to avoid being caught on the downside of a market that has peaked.
Last week, there was an unconfirmed report that the Central Bank of Nigeria (CBN) supplied $1 billion to the markets.
The Chief Executive Officer of Dairy Hills Limited, Kelvin Emmanuel, urged caution, noting that the upward movement of the naira may be a momentum growth and not a development that can sustain midterm or long-term planning.
He argued that the fundamentals that led to the sliding of the naira have not changed dramatically in the last couple of weeks and then wondered why the sudden rise of the naira.
He explained: “The 24 per cent drop within 48 hours should not be celebrated because the fundamentals of a falling naira have not changed – rising subsidy payments, the disparity in rates that has shrunk the flow of Foreign Direct Investments (FDIs), dis-incentivization of companies from bringing back their NXP proceeds in line with RT200 programme.”
He further cautioned that the danger of using a smoke-screen of currency redesign to call back excess cash in circulation that came from violation of section 38 of the CBN Act, is that it can cause panic in currency markets, which raises the inflation from chaos in the markets, especially when one considers that there is a $28 billion flight of capital to dollar-denominated accounts.
However, he held that the recent appreciation in the naira will not significantly impact already scheduled government training programmes planned to hold abroad, saying most times the tradition of civil servants for ensuring that allocation is not returned to the federation account without use, but is instead converted to Duty Tour Allowances (DTAs).
He also said the move by the United Arab Emirates government to limit visas to Nigerians is unlikely to impact such training.
“I also do not see the Visa row with the UAE impacting Nigerian civil servants, since it’s government-to-government, even though unconfirmed reports have it that the real reason the UAE government banned Nigerians from tourist Visa was as a result of the row on Emirates Airline ticket funds stuck in Nigeria, because the CBN has refused to provide USD at the official markets for repatriation, and had at the same time refused the airlines to sell tickets in USD in contravention of sections 20(5) of the CBN Act,” he stated.
On the market prices of goods and foods, Emmanuel observed that these will be impacted greatly by the rising inflation, especially for salary earners.
His words: “The inflation in the price of goods as a result of instability in the exchange rate, especially for food and energy will deal a significant blow to government workers who earn a fixed salary, and whose purchasing power has dropped significantly as a result of the rule of 72 – the higher the inflation rate goes, the shorter time it takes for your currency and consequently your purchasing power to lose a 100 per cent of its value, which at 20.77 per cent, is three years and four months.”