Stabilization of the Naira: How The CBN Regulatory Regime is Aiding and Abetting Money Laundering and Devaluation of the Naira

Part Two

Attention: Minister of Finance and Governor of Central Bank.

Spending and investing catalyze economic recovery during a recession. The austerity package is stultifying, suppressing growth and leaving chaos in its wake. Ask President Obama, and he will tell you better. It's all about investment and breathing life into cash-strapped industries by way of new funding, referred to colloquially as "Bailout."

The hardship Nigerians in their thousands encountered at the Banks and at ATMs on the eve of Christmas, trying, without success, to execute withdrawal from their Bank Accounts feeds into the narrative out there that the corridor of power and the upper echelon of the CBN are populated by voodoo economists.

Leaving the affected Nigerians cashless before and during Christmas, and no one within the Banking sector or within the corridor of power to offer any explanation for the unavailability of cash is despicable, callous and completely illogical.

Economic growth is about spending and investment - on infrastructural facilities, road-networks, research and technological innovation. The present trial and error (austerity of cash) monetary policy championed by the Governor of Central Bank and the Presidential Economic team is patently haphazard, lacking the steam germane for economic revitalization.

There is a huge difference between (1) having stack of cash in one’s possession or at the Bank and not being able to find foodstuffs to buy (inflationary), and (2), having goods and foodstuffs readily available for purchase by consumers, but they cannot consummate purchases, because the regulatory regime has foreclosed on their savings accounts as it is presently the case in Nigeria.

Let's simplify it even more: If there is a shortage of money in circulation, consumers won't be able to buy and suppliers won't be able to sell. If suppliers are not able to sell, distributors or wholesalers won't be able to distribute. If wholesaler cannot distribute, manufacturers won't get paid or be able to offload their inventories. What that means is that they (manufacturers) won't have any need for new workers or retaining existing workers, leading to a profound lull in economic activities - depression.

Spending or investment paralysis catalyzes depression. The ongoing austerity package is stagnation -prone - it strengthens recession. Though the market situation today has traces of inflation, there is no too much money chasing too few goods. And there is no shortage in the supply and demand for goods and services. It is the Government's policy that is killing the Naira, leading to a price hike. Because Naira's worth is being measured as against the disappearing Dollars.

The truth is the Nigerian currency market is over regulated. Too much Naira is chasing too few Dollars, because of the restriction placed on demand and supply of Dollars in our domestic market. And that explains the precipitous decline in value of the Naira juxtaposed with the Dollars. The shortage of the Naira will not only kill the economy, it has the potential to exacerbate social unrest nationwide.

In sum, the situation is not too much Naira chasing too few goods and services, but too much Naira chasing unavailable Dollars. In a similar vein, the shortage of the Dollar will not only erode confidence in the Nigerian economy, it will exacerbate money laundering. I will explain.

Money Laundering By Other Means.

Since the inception of this administration, Nigerians at home can no longer walk into the Bank or the Western Union to withdraw money sent to them from overseas in the currency in which it was originally sent. That's not all, the recipients are not only paid in Naira but at the government regulated rate. In other words, the patronizing of Western Union to execute withdrawal and exchange at Black Market rate is no longer feasible.

On the other hand, when you are sourcing for Dollars or Pounds at government regulated rate from the Banks or the Western Union, you are not likely to succeed. At that point, the only alternative left before you is to proceed to the Parallel Market or Black Market to buy, where there is already shortage and price hike. But not the same story with the uber privileged. 

As anticipated, Nigerians living abroad who labored for their Pounds, Euro, and Dollars under excruciating conditions are not willing to be held captive by a regulatory/monetary framework they considered dubious and ill-defined. And they went to work.

In the past eight or so months, the situation has changed, placing the government and the Central Bank, in fact, the entire Banking system in Nigeria at the receiving end. The major foreign currencies are no longer coming to Nigeria as "Hard Currency" subject to governmental control.

Nigerians living abroad can now take their hard currency and paid them into the accounts of other Nigerians living in the same country as they do, who will in turn instruct their agents in Nigeria to pay the specified recipient at home in Naira, at a little less than the prevailing Black Market rate, but significantly higher than the regulated rate.

Now, if you consider the magnitude of Dollars and Pounds and Euro Nigerians abroad remit home every month - Dollars, Pounds, and Euro that have been swelling the Nigerian economy over the years - you should be able to fathom the volume of foreign currencies presently accumulated overseas by Nigerians who are funding the transactions behind the scene back in Nigeria. What a smooth way to repatriate their accumulated Naira out of Nigeria, without wasting time patronizing "Bureau de change" or Banks!

The CBN, arguably, wanted to corner a chunk of the hard currencies being sent home by hard working Nigerians abroad by forcing them to "exchange" at the regulated rate. In the process, they have succeeded in pushing them to devise alternative means to repatriate their money to their loved ones at home, notwithstanding the fact that such alternative means have constituted smooth sailing channels for roguish Nigerians, their friends, and cronies to ferry their ill-gotten wealth out of Nigeria, unhindered.

I do not subscribe to the culture of money laundering, especially one developed by taking advantage of a loophole in the regulatory regime. What I consider nauseating though is the discriminatory application of the exchange rate policy in Nigeria. While highly placed government officials can simply walk into the Central Bank or any Bank and procure their currency demands at the official exchange rate, poor and underprivileged Nigerians do not enjoy such luxury. They patronize the Parallel Market, buying at the prohibitively high exchange rate. That's a major lapse in the policy that needs to be corrected.