On Tuesday, July 19, while speaking at the Monetary Policy Committee (MPC) meeting in Lagos, Nigeria, the governor of the country’s central bank (CBN), Godwin Emefiele, said that using the naira (Nigeria’s currency) to buy dollars is illegal. He threatened to arrest and prosecute any perpetrators caught in the act.

“For those taking money from banks to buy dollars, it is illegal to do so,” Emefiele said. “If the security agencies hold you, you will know the implication of that.” 

He said the CBN would conduct investigations, and any individual found culpable would be barred from conducting bank transactions. Emefiele further added that the CBN would sanction commercial banks found guilty of facilitating illegal currency exchanges.

The governor’s statement has created some tension across foreign exchange markets. 

TechCabal reached out to some industry experts and asked them about the consequences of the statement. 

According to an expert who works as an economist in one of Nigeria’s top banks and spoke to us anonymously, the CBN governor’s threat is “words from a man who loves to hear his own voice a lot.” 

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This latest warning from the CBN appears to be the apex bank’s attempt to prevent further devaluation of the naira and the country’s economy, which, according to another foreign exchange analyst who spoke to TechCabal anonymously, is another “lazy and inefficient method to achieve the intended. By now, it’s becoming apparent that the CBN governor would rather talk to than learn from the market.”

Last year, the CBN launched a series of campaigns against any dollar affairs—information and exchange—happening independently outside the banks. In July 2021, the apex bank announced that it would stop selling forex to the bureaux de change (BDC), establishments that provide foreign exchange services to individuals and businesses. 

In September that same year, the CBN blamed AbokiFX, a popular forex publishing platform, for the deterioration of the naira against the dollar, and declared its founders wanted. Yet between September 1 and 6, the naira crashed further from ₦525/$ to ₦570/$ in the parallel market. Now on Monday this week, almost 9 months after the AbokiFX agenda was set, the naira has crashed to an all-time low at ₦620/$ in the parallel market. 

When the CBN announced the end of its business with BDCs last year, Kelechi Opara, an economist and market insights officer at MMS Nigeria, told TechCabal that “getting dollars could become even more difficult than what we had then”. And that was what happened: foreign exchange became so scarce that some banks reduced limits on international transactions performed on naira debit cards to $20 (around ₦10,000) per month. 

There is currently a higher demand for dollars than the amount the CBN can supply. Not only that, the process of getting dollars from both the CBN and banks is slow  for most people and businesses that need to transact urgently. The slowness is said to be intentional due to the rationing caused by FX scarcity. “Therefore, these people would continue to seek the parallel market/black market, which can supply them FX quickly,” global economy and finance expert Kalu Aja told TechCabal over a call.

All the experts that spoke to TechCabal agree that Emfiele’s threat has no legal backing. 

“A careful perusal of the laws in Nigeria, especially as it concerns the financial sector, reveals that the CBN is empowered to regulate the exchange of the naira currency as the legal tender in Nigeria,” Chinyere Okafor, managing partner at Acelera Law, told TechCabal over WhatsApp. She continued: “There however appears to be no guideline, regulation, rule, or enabling law authorising the CBN to arrest and prosecute Nigerians using naira to buy dollars, or that declares the use of naira for the purpose of buying dollars illegal in Nigeria.” 

Adedeji Olowe, the founder of Lendsqr, told TechCabal that the CBN will hurt its reputation further if it brings yet another rule it can’t enforce to the market. “There is also a possibility that this can be challenged in court,” he added. 

Okafor confirmed that the CBN’s directive can be “challenged in the court of competent jurisdiction except if it can be established that the purpose for the use of the naira for the purchase of dollars is for the prosecution of a corrupt and unlawful purpose, a possible arrest and conviction can be made.”

A desperate measure for a desperate moment

So, if the CBN’s directive is an unenforceable threat with no legal backing, why then did the governor issue it? 

“It’s desperation,” Oladipo Ajayi, head of fixed income & FX at Chapel Hill Denham Securities, told TechCabal over a call. “It’s obvious the governor is under pressure to make FX work and is now employing different tactics, including the recent threats, which doesn’t speak very well.”

Aja also said that the CBN is running out of ideas, and the governor is now employing administrative actions to drive down the demand for forex exchange. He mentioned that the CBN had tested a few strategies that were ineffective or abortive outright, one of them being the e-invoicing platform for import and export businesses to upload digital invoices so the apex bank could monitor logistics. 

Another strategy was the engineered devaluation of the naira against the dollar so that demand for dollars would be unappealing, thus driving it down. According to Aja, this strategy is hurting the foreign reserve since the CBN continues to leverage it to sell at the discounted official rate. In May, 2022, the foreign reserve dropped to $38.483 billion, declining by 5% from the $40.521 billion reported at the end of December 2021.

Has the apex bank lost the war against the consistent deterioration of the naira and, by extension, the “dollarisation” of the economy? 

“CBN wants to deter people speculating on the naira, but unfortunately, we import everything in Nigeria, which means the demand for dollars is beyond just those who are taking bets against the naira,” said Olowe when asked what could have been the motive behind the threats. 

Aja said the statement would only cause a scare in the minds of individuals and business owners who need FX for transactions. “People are likely going to pause their business and seek clarity on the statement.”

“I am not entirely sure of how the CBN is able to enforce this rule, so there is a chance it would have zero effect for businesses and individuals,” Olowe added, when asked about the impact of Emefiele’s directive on Nigerians. 

Olowe’s submission is disturbingly true because since the rain of sanctions began last year, the naira has been hurt even more,  and BDCs, despite having been cut off the chain, are still in business.

Aminu Zakariya*, a bureau de change operator who claims to have shops across Lagos, confirmed to TechCabal that the dollar is now being exchanged for ₦630 as of yesterday afternoon. But Zakariya, though unhappy, isn’t surprised that the naira is crashing every 2 market days. 

Now, instead of trading threats, what should the CBN do to get the naira back on track? Should they return to supplying to the BDCs? Let’s consider the fact that when the CBN newly accepted to sell to the BDCs in 2006, BDCs didn’t only ensure rate convergence and provision of liquidity, they helped in achieving exchange rate stability, which is the the major policy of the CBN—closing the rate convergence between the parallel market and the official market from ₦50–₦60 to only 50 kobo.

Ajayi, who also agreed that the BDC business model was becoming a get-rich scheme and deviating from its purpose, is of the opinion that the CBN shouldn’t have cut the BDCs off like that. “What they should have done is dilute their power by also selling FX directly to businesses who need FX to float their business.” Zakariya, on the other hand, thinks the CBN should stop Nigerian companies from using foreign currency to do business with each other and consider bringing BDCs back to the FX supply chain, and gets its control back as the apex bank. 

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