The Nation Newspaper

Tag: Currency

  • In search of single currency in Africa

    The quest for single currency in Africa was top on the agenda at the just concluded Annual General Meeting of African Export-Import Bank (Afreximbank) in Abuja. Ibrahim Apekhade Yusuf in this report examines some of the concerns raised by different stakeholders

    The take off date for the introduction of single currency in Africa is 2020. That idea and ideal was again reechoed in the last few days by many people who hold the view and very strongly that a single currency in the continent will be something well worth it.

    Quest for single currency

    Interestingly one of those in the forefront of the introduction of a single currency window is the African Export-Import Bank (Afreximbank).

    The bank has almost concluded the setting up of a pan-Africa payment and settlement platform that will finally dovetail into a common currency era on the continent.

    The goal of the project is to facilitate payment for goods and services that are traded intra-regionally and to facilitate that in the different local commerce, Benedict Oramah, president of Afreximbank, said at a press conference at the bank’s 25th annual general meetings in Abuja.

    “We have been engaged in a big project, the pan Africa payment and settlement platform which we are developing and I am pleased to say that we are nearing concluding that project.

    “We are doing to it to bring convertibility within Africa of African currencies, that is the first important step to having a single currency and we are doing it by providing a clearing platform,” he said.

    The bank is in a unique position to champion the project since it is not regulated by any central bank and that all the countries and members of the bank have signed the treaty, which specifically gives the project a nod, he said.

    “So, we have the legal basis, we have the convening power and we have the zeal to do it.”

    “What the platform will do is that for instance, somebody in Ghana buying goods in Nigeria will pay for input in Cedi, while the seller in Nigeria will receive naira, he said.

    “Ultimately, when we clear everything, only those who are in deficit would then be called upon to pay in dollars, however, as we do this across 54-55 countries in Africa, we’ll start to create a notional currency which would be built around the African Export-Import bank.”

    On the modalities to be adopted, he said the trade between Ghana and Nigeria, for instance, Ghana may be in deficit, but may be in surplus in the trade between it and say, Sierra Leone, “so we hold those in that notional currency which they can lend, and they can transfer to use to pay where they are in deficit.

    “From a multilateral angle, you may then find that the use of a foreign currency will trend towards zero.”

    Oramah said that if “this works according to their optimism and people get used to it, “it then forms the basis for the activities to be in place for a single currency to be there, the issues of macroeconomic convergence, they can then have a luxury of discussing them knowing that in principle, you are already trading using one currency.

    “That is our hope, and we are working very hard towards it,” the President added.

    Oramah also announced the Afrexim bank’s five years intra African trade strategy which hinges on three key pillars, including create, connect, deliver and which the bank started implementing in January.

    According to him, the strategy projects that by the end on five years, the bank would have disbursed $25 billion, having done $8billion already in the first year, well ahead of target.

    He said the strategy targets trade financing in food, oil sectors among others across Africa, as well as various logistics to support trade.

    Oramah also announced that in 25 years of existence, the bank has disbursed $50 billion to member countries for various developmental needs and exceeded expectations as well.

    According to him, the bank’s funds helped Africa remain resilient during the global financial crisis, though some of the countries still remain in difficulty.

    By 2017, all, but $1.5 billion of the loans granted to member countries were yet to be repaid, he added.

    The Eco is the proposed name for the common currency that the West African Monetary Zone (WAMZ) plans to introduce in the framework of Economic Community of West African States (ECOWAS).

    Why Afreximbank is pushing for single currency

    As the foremost pan-African multilateral financial institution, the Afreximbank is the devoted to financing and promoting intra- and extra-African trade.

    The Bank established in October 1993 by African governments, African private and institutional investors, and non-African investors. Its two basic constitutive documents are the Establishment Agreement, which gives it the status of an international organization, and the Charter, which governs its corporate structure and operations. Since 1994, it has approved more than $51 billion in credit facilities for African businesses, including about $10.3 billion in 2016. Afreximbank had total assets of $11.7 billion as at 31 December 2016 and is rated BBB+ (GCR), Baa1 (Moody’s), and BBB- (Fitch). The Bank is headquartered in Cairo.

    Growing support for single currency

    Another advocate of single currency is former President Olusegun Obasanjo.

    Obasanjo mouthed his support while playing host to the President, Economic Community of West African States (ECOWAS), Commission, Mr. Marcel de Souza, at his hilltop estate, Abeokuta recently.

    The former president said it was high time the organisation started using single currency, adding that it would help boost the economy of all members of ECOWAS.

    “We have decided that our unit of currency will be ‘eco’, let us now start using eco, let eco become our unit of currency.

    “Single currency unit for ECOWAS states will bring about more development and growth among the states,” he said.

    The former president also said that a deeper economic integration among members of the ECOWAS would gradually stem the tide of youths’ unemployment in the region.

    He stressed that economic integration of West African countries would guarantee development of the sub-region.

    “ECOWAS was established 41 years ago, the expectation of all of us was very high, I think we will not be fair to ourselves if we do not say to ourselves we have not moved as fast as we expected.

    “We must tell ourselves the truth that there has not been enough political will on our part to move the sub-regional organisation as fast and as far as we should have done,” he said.

    He advocated a reform that would enable member countries to move beyond movement of goods and services.

    Working at cross purposes

    Meanwhile, Nigeria and Ghana have taken different positions on the introduction of a single currency for the Economic Community of West African States (ECOWAS).

    Both countries failed to agree on the initiative at the meeting of the Presidential Task Force on the ECOWAS single currency programme, which held in Accra few months back.

    Nana Akufo-Addo, Ghanaian president, argued that member states should ensure that the single currency be introduced by 2020.

    He stated that ECOWAS was blessed with abundant human and material resources, hence having a common currency would speed up stronger commercial ties with accompanying benefits.

    “We remain determined to have a single currency which will help remove trade and monetary barriers, reduce transaction cost, boost economic activity and raise the living standard of our people. It is a goal, we must achieve,” he said.

    However, Godwin Emefiele, governor of the Central Bank of Nigeria who represented Nigeria at the meeting, cautioned against a hasty move to introduce a single currency for West Africa.

    According to him, ECOWAS heads of government have not properly analysed a comprehensive picture of the state of preparedness of individual countries for monetary integration by 2020.

    These comments mirror the views expressed by President Muhammadu Buhari at the 4th meeting of the presidential task force on the ECOWAS currency, which held in Niger in 2017.

    At that meeting, Buhari said Nigeria would not endorse the quick implementation of the currency policy because of diverse and uncertain macroeconomic fundamentals of many countries.

    “In previous meetings, we had specifically raised observations on the state of preparedness of the member states, the credibility of the union if anchored on watered down criteria, and the continuing disparities between macroeconomic conditions in ECOWAS countries, amongst others. And I would like to reiterate these concerns,’’ Buhari said.

    Speaking in Abuja, Julius Bino, an economist and public analyst, described the fears expressed by Nigeria as legitimate but unnecessary, stressing that a common currency would expand market opportunities for Nigerian goods and products.

    “Having a single currency would be of immense benefit to Nigeria. It would give our business men and prospective investors the chance to navigate the West African sub-region without the usual bureaucratic bottlenecks we experience,” he argued.

    He suggested an agreement would address whatever differences existed.

    Militating factors against single currency

    In the opinion of Amadou Diouf, an economist from ECA West Africa, he observed that many West African countries were yet to meet the macroeconomic convergence criteria for a single currency.

    Diouf spoke at the 21st Session of the Intergovernmental Committee of Experts for West Africa, in Cotonou recently.

    The Subregional Office for West Africa, based in Niamey, covers the 15 member countries of the Economic Community of West African States (ECOWAS): Benin, Burkina Faso, Cabo Verde, Cote d’Ivoire, the Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo.

    Diouf said from the Commission’s findings, many of the countries were yet to meet the macroeconomic convergence criteria for a single currency set up by the ECOWAS and the West African Monetary Agency (WAMA).

    According to the report, the goal is to create a common currency for West Africa. For the currency to be implemented, ten convergence criteria was set out by WAMA.

    Diouf said: “Less than two years from the attainment of the targeted deadline for the single currency, the prerequisite conditions to achieve the goals, notably the macroeconomic convergence criteria have only been partially achieved.

    “Ghana, Niger and Nigeria have been put in charge to advocate for this monetary agenda. An updated roadmap was adopted in Ghana at the meeting of the presidential task force. It is important that West African experts be informed of the new roadmap and examine the potential implications of the ECOWAS.”

    Divergent views over single currency

    The United Nations Economic Commission for Africa (ECA) recently said Nigeria’s economic performance is crucial to adopting a proposed single common currency (Eco) in West Africa, because Nigeria represents more than 75 per cent of the GDP of the region. To some analysts, the Eco can expand Nigeria’s economic horizon across the region, even to the Francophone nations. Others believe it will boost regional corruption, and enhance cross-border looting and capital flight.

    In the view of Odey Bishop, “Nigeria does not need the Eco now because we have our teething problems to tackle, like poor leadership, corruption, insurgency, ethnicity, youth unemployment, and cattle herdsmen etc. Yes, it will boost regional corruption and enhance cross border looting and capital flight. Over 100 years after amalgamation and 57 years after independence, we have not been able to achieve even one of the five fundamentals of economic growth: 24-hour electricity, good road network, efficient transport system, adequate security throughout the land and low interest rates so that small scale businesses can thrive. Education, health and other sectors are in poor state. Let’s face and overcome these issues along with wiping out the monsters called poor leadership, corruption, ethnicity, youth unemployment and insurgency etc before we multiply our problems. Let’s forget the question of single common currency Eco in West Africa for now till further notice.”

    Echoing similar sentiments, Mr. Olumuyiwa Olawale, a financial analyst observed that, “The idea of a single regional currency in West Africa, though appealing, may not benefit Nigeria in the long run, because of the identified issues of corruption and cross-border capital flight across member nations. An Eco may encourage looting and this will be counter-productive to development. Let us even close our borders! Britain insisted on its currency the pound even as part of the EU; Nigeria, which contributes around 75 per cent of the region’s GDP, doesn’t really need the Eco for now; maybe much later when regional integration is better,”

    In the view of a Mr. Gordon Chika Nnorom, Public Commentator, the idea is a welcome development as it will help to promote oneness among the ECOWAS member nations. “After all European nations have their own euro and it is working for them; why not us? Rules and regulations must be obeyed for sustainability of treaty on member nations having one currency. Any nation that violates the treaty should be sanctioned. It will promote trade and services among them.”

    Though the set date for the takeoff is 2020, but if the groundswell of opposition is anything to go by, no one is yet certain about the exact date the single currency proposal which has been on the front burner of public discourse for years will materialise.

     

  • Buhari warns ECOWAS countries against currency integration

    Buhari warns ECOWAS countries against currency integration

    President Muhammadu Buhari has cautioned member countries of the Economic Community of West African States (ECOWAS) against implementing the planned currency integration in the sub-region by the year 2020.

    President Buhari, who was represented by the Governor, Central Bank of Nigeria (CBN), Godwin Emefiele, spoke yesterday during the fifth meeting of the Presidential Task Force on ECOWAS Currency Programme in Accra, Ghana.

    He noted that Heads of Government had not properly articulated and analysed a comprehensive picture of the state of preparedness of individual countries for monetary integration by 2020.

    He reiterated that the non-preparedness of some member countries had watered down criteria and the continuing disparities between macro-economic conditions in ECOWAS countries.

    President Buhari further observed that ECOWAS Heads of Government had not been adequately briefed on the full implications of forcing through the integration by 2020, particularly where some countries were not individually ready domestically.

    While pointing out that there were still outstanding issues in the roadmap to an integrated currency union, he noted that the macro-economic fundamentals of many countries in ECOWAS were diverse and uncertain. He also noted that the inflation targeting regime recommended as framework was not feasible as it was based on adoption of a flexible exchange rate regime. He equally noted that real convergence was nowhere near achievable despite efforts made so far.

    President Buhari therefore called for a push towards ratification and domestication of legal instruments and related protocols, and the harmonization of all fiscal, trade and monetary policies and statistical systems, with a view to limiting the extent of current policy divergences.

    He also advised that the West African Economic and Monetary Union (UEMOA) countries to make a presentation on a clear roadmap towards delinking from the French Treasury.

  • Fed Govt allays fears over currency risk on dollar loans

    •$3b Eurobond, $300m Diaspora bonds listed on NSE, FMDQ

    The Federal Government has allayed fears that its increasing recourse to foreign-currency denominated bonds may pose considerable currency risk and debt crisis as government has taken measures to ensure that it maintains a prudent and sustainable debt strategy.

    Debt Management Office (DMO) Director-General, Ms Patience Oniha, who spoke at the listing of Federal Government’s Eurobonds and Diaspora Bond at the Nigerian Stock Exchange (NSE) in Lagos, said Nigeria would not be subjected to any considerable foreign currency risk given foreign exchange earnings from its crude oil and ongoing efforts to diversify the economy.

    According to her, besides the foreign exchange earnings from crude oil, the country stands to gain increased foreign exchange earnings from the ongoing economic diversification programme.

    The NSE admitted the FGN 30 year $1.5 billion Eurobond, FGN 10 year $1.5 billion Eurobond, FGN 5 Year $300 million Diaspora Bond on its daily official list.

    She said government would continue to implement a prudent fiscal and debt management strategy to reduce the cost of debt, rebalance its debt and attain a portfolio of 60:40 foreign/domestic debt structure over the coming years.

    Oniha assured that the DMO would sustain its innovative and diverse fund raising plans to ensure optimal funding structure for Nigeria to address key infrastructural challenges.

    She said the continuing listing of government’s domestic and foreign debt issues on the stock market underscored the commitment of the government to the capital market and recognition of the importance of the market in national economic development.

    She noted that amid uncertainties, the government has so far this year accessed the international capital markets four times in 2017 and at every issue, it had achieved overwhelming success.

    Oniha explained that funding the budget deficit and refinancing the government’s inherited debt portfolio have been the key drivers behind the capital raising plans so far, adding that these will lead to significant benefits, particularly in reduction of cost of funds.

    She noted that the Diaspora bond provided opportunity for Nigerians in Diaspora to contribute to the development of the nation.

    Nigerian Stock Exchange (NSE) Chief Executive Officer, Mr. Oscar Onyema, said the Exchange would continue to collaborate with the government in the development of Nigerian debt market.

    “We would be coming up with other types of products that will give the investors a good menu of options in terms on how to diversify portfolio,” Onyema said.

    At the listing of the Eurobonds and Diaspora Bond at the FMDQ OTC Securities Exchange, Oniha said the listings would increase the number and range of securities in the domestic capital markets, thereby deepening the market and promoting financial inclusion.

  • Experts seek policy on crypto currency trade

    The Chief Executive Officer of Xchangerate.oi, Mr. Peter Moradeyo, has appealed to the Central Bank of Nigeria (CBN) to come up with a policy framework for trading in crypto currency.
    Moradeyo made the appeal at the launch of its CBM 2.0 model of crypto currency trade held at Eko Hotel in Lagos. The programme also featured graduation ceremony of 16 people who participated in their 30 days’ online training programme, after which awards were given to supportive staff and customers.

    He said that the Crypto currency trade is a growing phenomenon in Nigeria that requires proper education and policy framework for its users so that they will not be scammed.
    He noted that although the Central Bank of Nigeria had earlier announced that Nigerians should be weary of crypto currency trade, saying mere announcement cannot deter people who are spending their own money but the regulatory agency can help in providing proper education and direction.
    Moradeyo, who is also the Principal Consultant, Cryto Plus Certified, said “you cannot stop people from spending their money the way they want. We can only advise them on what and how to better use their money.”

    He said: “CBN should tell us what it is and what is not. They need to advise us appropriately, so that everyone will be guided to make the right decision. They need to properly let Nigerians understand the concept of crypto currency trade and see how they can help the users have correct information. So when the users appreciate it correctly, they are able to make their informed decision.”

  • FG mum on currency swap agreement one year after

    Indications are that the federal government may have jettisoned the currency swap agreement between Nigeria and China as the policy initiative is yet to be implemented one year after the deal was signed.

    President Muhammadu Buhari last year travelled with a high-level government delegation to China, during which the Industrial and Commercial Bank of China Ltd (ICBC), the world’s biggest lender, and Nigeria’s central bank signed a deal on yuan transactions.

    The agreement was reached following a meeting between Buhari and Chinese President Xi Jinping.

    But exactly one year after the agreement was signed, nothing much has been heard about it ever since.

    The Nation findings revealed that the policy has been put on hold indefinitely as there are plans to hold talks with the Chinese government to straighten a few loose ends.

    Our correspondent further gathered that the apex bank which is saddled with the responsibility of implementing the policy is awaiting directives from the government.

    One of those worried that the currency swap deal may have flopped is Alhaji Aminu Gwadabe, President of the Association of Bureau De Change Operators of Nigeria (ABCON).

    Speaking in an interview with The Nation over the weekend, he expressed dismay that the policy may have been sacrificed in the altar of political expediency.

    “I don’t think the policy has achieved its aims and objectives. I have a feeling that the policy has been kept in the cupboard and l don’t know why. And you know the expectation was that this was going to be the alternative choice to the dollar. But honestly, l don’t know what really happened as to why the policy has not seen the light of day,” he lamented.

    Pressed further, he said: “It’s something l think the federal government and the CBN should as a matter of urgency look into as part of the options now to reduce dollar demand to revisit that agreement and relationship so that we can have a lesser pressure on the dollar and that will really help to strengthen the naira. It’s surprising that nothing has been done to it one year after that agreement had been signed.”

    He reiterated that if the policy is pursued to its logical conclusion, it will reduce pressure in dollar demand as well as enhance the value of the naira. “If you look at it, our trade relationship is even moving from Europe to China. A lot of people now go to China for business imports. People have stopped going to Europe, America and UK. In terms of our trade relationship in China, the idea of introducing Yuan as a second currency instead of dollar is germane and something that we should consider seriously in order to strengthen that bond.”

    However, in the view of Prof. Jonathan Aremu, renowned economist and professor of International Economic Relations at the Covenant University, the currency swap initiative has not miscarried in anyway. Waxing philosophical, he said: “There’s nothing wrong in planning but even if you plan and then the planning is not going the way you want it, if there are conditions that can make it work, one should be able to look at the options to effect the necessary changes.”

    Expatiating, he said: “That the thing did not pick up does not mean that it’s a failure. No. I agree that the Chinese economy is expanding and a lot of developing economies are benefitting and it’s therefore a very wise thing to be able to trade directly with them by converting our naira to yuan because it’s going to be a lot cheaper rather than using the intervening currencies of Euro, dollar or pounds sterling. But what l’m suggesting is that since they have not perfected the arrangements to get it started, l think the federal government need to work on it further.”

    While emphasising that the major reason for the delay, may have been due to change of the policy environment, he however impressed on the apex bank on the need to perfect all the necessary arrangements so that the currency swap can takeoff despite the policy environment.

    “It’s not that they went to China just on a pilgrimage and then nothing happened. That they did not say anything about it doesn’t mean that it has died. What l’m saying is that the prevailing circumstances at the time the agreement was struck has changed relatively and substantially. As such, there may be a need to go back to the drawing board and then look at what can be adjusted to accommodate the emerging changes so that when the thing starts, it’s going to be something that is sustainable. That’s the way l look at it.”

    Contacted, the CBN Acting Director, Corporate Communications Department, Isaac Okoroafor didn’t pick his calls and neither replied sms sent to his mobile phone.

  • Ex-CBN chief: 20% of currency in circulation fake

    Ex-CBN chief: 20% of currency in circulation fake

    • Blames recession on weak regulation

    A former deputy governor of the Central Bank of Nigeria (CBN), Obadiah Mailafia, has said 20 per cent of the currency circulating in the country is fake.

    He spoke at the National Assembly yesterday while delivering a lecture at the public hearing on the 2017 budget.

    Mailafia said it would be impossible to bring down food prices with the fake currency in circulation.

    “Twenty per cent of currency circulating in Nigeria is fake; you can’t bring down food prices if you have fake currency circulating,” he said.

    Mailafia said apart from the foreign exchange (forex) crisis, the refusal of the CBN to effectively regulate commercial banks contributed to the recession.

    “I am a former deputy governor of the CBN, so when it comes to regulations, we could have done better. If you have recession, you have to open a situation room where experts will be monitoring the economy daily. These experts will work on ways to get the country out of the situation,”Mailafia said.

    He advised the authorities to take steps to prevent the naira from plunging “down forever”.

    “If nothing is done, the naira will continue to plunge down forever.

    “This is where boldness in economic policy is needed. Though the current administration inherited recession, Nigerians expect them to tackle it. That was what the Obama administration did. We need stabilisation of the exchange rates,” he said.

    Mailafia advised that the budgetary process should be structured in a way that would ensure rapid economic recovery.

  • Digital currency drops 20%

    A dramatic rally in digital currency bitcoin came to a spectacular end on yesterday with a plunge of up to 20 per cent as China’s yuan rose sharply – further evidence of an intriguing inverse relationship between the pair.

    Bitcoin had gained more than 40 percent in two weeks to hit a three-year high of $1,139.89 on Wednesday, just shy of its all-time record of $1,163 on the Europe-based Bitstamp exchange BTC=BTSP. But it yesterday, dropped as low as $885.41 as the yuan jumped by over one per cent in offshore trading and headed for its strongest two-day performance on record.

    Chinese exchanges have reported high volumes of trading of the web-based “cryptocurrency” over the past year, during which time the yuan has shed almost seven per cent, its worst annual performance since 1994, while bitcoin has surged 125 per cent, outperforming all other currencies for a second year in a row.

    Bitcoin can used for moving money across the globe quickly and anonymously, and operates outside the control of any central authority. That makes it attractive to those wanting to get around capital controls, such as in China, and also to investors who are worried about a devaluation in their currency.

    “Given that the yuan’s weakness over recent months seemed to correlate with bitcoin’s strength more than any other currency, it’s no surprise that bitcoin traders have reacted the way they have to the yuan’s sudden strength today,” said Paul Gordon, co-founder of London-based Quantave, a firm seeking to make it easier for investors to access digital currency exchanges.

    Exchanges in China say they account for more than 90 per cent of global bitcoin trading, which would help explain why a shift in Chinese demand would sharply affect the price.

    But many bitcoin experts say Chinese exchanges overstate their volumes in the digital currency, and attribute sharp moves to speculation by, for example, U.S.-based hedge funds. Some said bitcoin’s fall was a natural reaction to the speed of its previous rise. It is still up more than 50 percent on three months ago, when it was trading at around $600,

    “If something goes up very rapidly…people make a lot of money, and at some point they’re going to want to sell, in order to realise their gains,” said Marco Streng, CEO of bitcoin mining and trading firm Genesis Mining.

    Bitcoin had recovered some of its earlier losses to trade down almost 15 percent on the day at around $950, still leaving it on course for its worst performance in a year.

    On some digital currency exchanges – of which there are dozens – bitcoin did reach record highs late on Wednesday.

    “Once we broke through the nominal all-time high, liquidity dried up – no shorts, no sellers, which means a volatile little bubble formed quickly,” said Peter Smith, CEO of London-based Blockchain, the biggest bitcoin wallet-provider globally. “We are seeing the effects of that now as it breaks. It’s still fairly thin trading volume though, so who really knows where it goes next.”

  • Naira bounces back against dollar at interbank market

    Naira bounces back against dollar at interbank market

    The Naira on Wednesday appreciated against the dollar at the interbank market, the News Agency of Nigeria (NAN) reports.

    The Nigerian currency gained 50k to close at N304.50 compared to N305 it traded on Tuesday.

    At the Bureau De Change (BDC) window, the Naira was sold at N400 CBN controlled rate, while the Pound Sterling and the Euro traded at N565 and N500, respectively.

    Skeletal, but clandestine trading at the parallel market saw the Naira closed at N470 to a dollar, while the Pound Sterling and the Euro closed at N565 and N500, respectively.

    Traders said that dollar scarcity persisted in the market as dealers seek more unconventional ways of meeting the needs of their customers.

    NAN reports that the parallel market had been in the eyes of the storm as security agents were on the lookout for currency traders.

    The apex bank gave a nod to the ongoing crackdown on currency traders at its Monetary Policy Committee (MPC) meeting on Tuesday.

    Since the battle line had been drawn between the security agents and traders, dollar scarcity was expected to persist along the frontiers of the parallel market. (NAN)

  • StanChart lists gains of Chinese currency to Nigeria, others

    StanChart lists gains of Chinese currency to Nigeria, others

    Standard Chartered Bank (StanChart) has highlighted the benefits the use of Renminbi, Chinese currency, in major transactions would bring to Nigeria, Kenya and South African economies.

    Already, experts from StanChart’s Greater China Region are planning a road-show to the three countries to enable them outline the benefits and investment opportunities China’s latest ‘One Belt One Road’ initiative and global currency, the Renminbi, brings to the continent.

    The road-show is aptly timed with the Renminbi’s officiation into the International Monetary Fund’s ‘Special Drawing Rights’ (SDR) list of global currencies, which became effective last October 1.  “We have been at the forefront of the journey, partnering with Chinese authorities and supporting global clients in leveraging the opportunities the Renminbi and investment partnerships bring. China’s ‘One Belt, One Road’, is a development strategy launched by the Chinese government in 2013,” StanChart said in a statement.

    “Also referred to as the ‘New Silk Road Plan’, the ‘Belt’ route links China with Europe through Central and Western Asia, and the ‘Road’ refers to the 21st Century Maritime Silk Road, which connects China’s ports to Southeast Asian countries, Europe and Africa,” it added.

    StanChart’s Head of Renminbi Solutions for Corporate and Institutional Banking commented, Carmen Ling, said:  “One Belt One Road’ aims to promote cooperation between more than 60 countries along the route, in key areas such as policy coordination, infrastructure, trade relations, financial integration and intercultural exchange.  With a presence in Africa, Asia and the Middle East, StanChart has the products, insight and experience to support and guide governments and corporate clients on how they may benefit from China’s ongoing investment and trade.”

    StanChart’s Regional Chief Executive Officer for Africa & the Middle East, Sunil Kaushal, added.

  • ‘Currency speculation is naira’s biggest hurdle’

    ‘Currency speculation is naira’s biggest hurdle’

    The naira, pundits say, has in the last one year, lost nearly 60 per cent of its value to oil price slump and currency speculators. Association of Bureau De Change Operators of Nigeria (ABCON) President Aminu Gwadabe believes that the introduction of the flexible foreign exchange (forex) policy by the Central Bank of Nigeria (CBN) will curb currency speculation because it makes the rate unpredictable. He tells COLLINS NWEZE that Bureaux De Change (BDCs) are not parallel market operators, but are legally licensed by the CBN to serve the retail end of the forex market.

    How would you assess Nigeria’s foreign exchange market and the state of the naira?

    The foreign exchange market in Nigeria is of great concern, because there is a lot of volatility in the market.  We witnessed several circulars from the Central Bank of Nigeria (CBN) on the need to provide necessary solutions that would make the naira to rebound. If you do not forget, the volatility started like a year ago, and we have witnessed several policies from the CBN, trying to ensure that the market remains stable. The value of the naira is also not good because it has been devalued by almost 50 to 60 per cent this year. This year, the naira opened at N107 to the dollar at the official market, and today it is exchanging as high as N350 to the dollar. Liquidity has shrunk because of the withdrawal of foreign investors from the market, most of them have moved out of the country.

    And one major factor too, is the drop in crude oil prices in the international market, and the dwindling foreign reserves. In Nigeria, we have not been able to build strong buffers, so that when we witness this type of thing, like other countries, we would be protected. For instance, the United Arab Emirates has over $400 billion in their reserves, and that is a very big buffer for them as it protects their local currency at any given time. Don’t forget that without the buffers, there is no way one can defend the local currency. In Nigeria, the naira outside the banking system is even bigger than the one inside the banking system. With that, it is difficult for the regulator to control the money outside the system, which should be mopped up to enhance the value of the naira.

    How acceptable is the naira outside the country, especially within the African region?

    The naira is accepted in about 18 countries. It is accepted in Sudan, Chad, Benin Republic, among other countries. So, you can see that lack of effective control of the naira has led the naira to chase dollar in Nigeria. The dependence on Nigeria by our neigbouring countries to get dollars for their importation in their country is another thing that is giving us a lot of concerns when it comes to stability of the naira. For Ghana, Benin Republic, Chad, Cameroun, most of their dollar needs come from Nigeria. So, the factors are many why we are seeing this type of problems. But, we must commend the effort of the CBN. The apex bank has been resilient in its policies, whereby it banned some 41 items, merged the retail Dutch Auction with the wholesale Dutch Auction, and today what we have is the flexible single market whereby there will be transparency. With the current introduction of bureau de change into the market, the volume of Diaspora remittances have started to increase and the CBN is capturing it.

    Some people said the naira is overvalued, while others think it is undervalued. What do you think should be the value of the naira?

    You see, the value of your currency depends on the balance of your payments. If you look at Nigeria’s situation, you must earn dollar for you to be able to say, you have dollar to defend the naira. Our earning capacity for dollars from the sales of crude oil has reduced by almost 70 to 80 per cent. Then, what are other sources that could give us that earning capability? It is export of non-oil products like agricultural products. Up till now, 50 per cent of the dollar we spend goes to the importation of food, petroleum products and other related services.

    That is why it is difficult to say the naira is overvalued or undervalued. But, you see, nobody wants to leave its local currency to the whims and caprices of the market forces. Every country wants to ensure that its currency is within the band. Before a country devalues its currency, there must be some elements, which would force it to do so. For Nigeria, some of those forces are the dwindling foreign reserves, and dollar earnings. You know that Nigeria is a dependent economy, the food we eat is imported, and the clothes we wear are imported. So, these are some of the challenges that will continue to determine the value of the naira.  With the discipline we are seeing, especially from the new leadership of Nigeria, the plugging of wastages is going to go a long way in making the naira stronger.

    But the naira has continued to depreciate despite the government’s continuous efforts to curb corruption and block revenues leakages. The CBN has also tried several options, including the unveiling of the flexible forex regime. What is responsible for naira’s continuous fall?

    It is too early to say that the flexible forex policy is not working. Like I told you, it is not the wish of the CBN and the Federal Government, to freely allow naira to be determined by the market forces. There are lots of pressures from the international investors, the World Bank and International Monetary Fund. The opinion they are giving is that for us to ensure liquidity of foreign currency, we must devalue the naira.

    But the Federal Government and the CBN have stood their ground for a very long time by not allowing naira to float freely. The advantage of the flexible forex regime is that the volatility you see, whereby naira everyday is getting weaker, once it goes up, another thing will bring it down. You see, from N350 to dollar in the morning, before the close of the day, it comes to N315 to dollar. That is one of the advantages of flexible forex regime. Before, if the naira exchanges at N350 to dollar today, it can be N400 to a dollar tomorrow, next tomorrow it is N450. You don’t have that kind of swipe whereby it goes up and comes down. Any price that goes up and comes down is likely to have equilibrium. That price equilibrium through market forces has been established. There is no need for you to buy the naira and hold. There is also no need for you to buy and speculate. There is no need for you to buy and keep in your farm or move around in your vehicle because, the naira is stable.

    These are the intension behind the policy, and it is still new. There are teething challenges as I told you, because it is the market that should be liquid. It is not just about the banks relying on the CBN, the CBN should also rely on the banks. That is why we called it a two-way quote. It is not only the banks that should go and queue on the CBN window, sometimes the CBN should also come and queue on the banks’ window, which is the interbank market. You can see that the CBN is always coming to do modification in the market, when it came in, its intention was about four banks. As soon as it saw the implication of that, it opened it up, so that all banks are now forex dealers. Before, the BDCs were not allowed to operate in the market, now the CBN has opened a window for operators. So, I am sure all these modifications would make the naira to be stable.

    We are happy that the CBN has started to bring the BDCs into its calculations because the operators were previously seen as the black sheep within the forex market. Now, what do you think could have led to this change of attitude towards the BDCs?

    You see, I appreciate this question and I want to use this opportunity to make clarifications. The fact is that when you talk of BDCs, there are parallel market operators and black market operators. The parallel market is the opposite of official market. So, the BDCs are not parallel market operators. There are over one million parallel market operators in this country and they have been here even before the coming of the CBN. They have been here even before the CBN licencing the BDCs in Nigeria.

    There is a big difference between a parallel market operator and a BDC operator. And if you look at it, last year, we were branded the black sheep in the industry. In India, the BDCs generate over $30 billion from the Diaspora remittances. In United Arab Emirates, the entire banking needs of banks are met by the BDCs. The working of the Lebanon economy is highly dependent on the activities of BDCs in that country.

    The CBN has decided to sell $50,000 weekly to BDCs. Do you think that BDCs are supposed to get more?

    We appreciated the gestures. There was a time that the BDCs were accessing almost $600, 000 weekly, but we are all Nigerians. Now, the earning capacity of the nation has reduced. Import has reduced by 50 per cent in this country. The demand for dollar has also reduced. To us, the $50,000 weekly is appreciated. For the past seven months, we could not even access $1,000 from the official market or interbank. If we explore the opportunities in the Diaspora remittances, a time is coming when each BDCs can access at least $100,000 weekly. So, it is the beginning. We are supporting the CBN to ensure we play that role of rate convergence. Transparency will be there.

    Does the gap between the official and parallel market rates worry you?

    The gap is very worrisome. As a Nigeria, anytime I see the gap increasing, I become concerned and say that this gap has to be reduced. I told you before, the reasons that create this gap and also compromise. Nigeria is an economy where you see compromise. Speculators are always standing to ensure that the naira does not see the light of the day. Speculators are the biggest challenge facing the naira. Don’t forget that speculation is on its own, a business. Once CBN follows one road, they will find way to frustrate the policy and ensure that their business is ongoing. But with increased transparency, liquidity, the activities of speculators will be reduced and volume of parallel market operators will also be reduced. People are now talking about how do earn dollar from how do we spend dollar. We should move from the era of saying allocation to think of how to bring in the dollars.