Firefire:


You imagine, the same CBN policy earlier placed an embargo on $ deposit.

Obiagelli:

The restrictions obviously isn't working

Obiagelli:

Calm down, the government still earn money in dollars for sale of oil (however small) but still pays state government in naira. That should stop

oduastates:
All the dollars will immediately fly out.

SirShymexx:


Lol. The question just doesn't make any sense whatsoever, since there's already a restrictive policy on FOREX in place, with a fixed artificial value for exchange rate. Flooding the country with dollars will just show that the CBN is clueless and it'll most likely lead to hyper-inflation.

I think a lot of folks don't understand how messed up the Nigerian economy is right now, especially with how depleted the foreign reserves are. The depletion of the foreign reserves takes away the "shock-absorber" that would've been used to negate the effects of the falling oil prices, since oil is the nucleus of the Nigerian economy, and everything else revolves around it.

The best thing to do is to ride it out, while the CBN keeps the artificial exchange rate, pending when the other sectors, can start thriving independently without oil. Thus making it a blessing in disguise. Or pray for the holy grail: the holy grail right now is for a major war to kick off in the middle east, perhaps, with Saudi Arabia and Turkey invading Syria, or any type of madness, that'll drive oil prices up. Apart from that: it's going to be a long hot summer.

This is a test for Buhari since he campaigned about change. If he can pull it off and use this to diversify the naija economy. Then he'll write his name in gold. But I won't bet on that. Or this might be the beginning of the implosion certain folks have been waiting for to balkanise the country. This is just the beginning of a long walk in the serengeti.

Shalom.

4Play:


That's actually true. In a hypothetical scenario where the CBN somehow manages to flood the economy with dollars, it will cause a short term rally in the Naira but not for long as the dollars will make its way out of the country.

Obiagelli:

Do we earn oil money in naira?

Obiagelli:
My problems with devaluing the naira:

Stock Exchange will loose its value by half

Landing cost of petrol will increase

Inflation! Inflation!! Inflation!!!

It will not in anyway improve export

Black market prices will continue to rise.

Firefire:



Am here to add to my knowledge ni, am calm like water.

You argued that CBN should pay the state government in USD right? That would require a revised of some of CBN monetary policy.

However, paying states in USD is not new to Nigeria, (2008, CBN did same).


CBN Now Pays States in Dollars

Nigeria, 01/17 –

With effect from this month, the Central Bank of Nigeria (CBN) will begin payments from the federation account to states in US dollars.

The dollar payment, which is one of the four pillars of the CBN`s “Strategic Agenda for the Naira” originally billed to be implemented last September, is geared towards strengthening the nation`s currency, the naira, and managing liquidity in the economy.

Already, the banking watchdog has paid the $1.8 billion refunds from excess Paris Club exit debt to states last month.

A circular containing guidelines for the dollar payments addressed to banks and obtained by THISDAY states: “Sequel to the payment of the Paris Club, from the excess crude deductions from their statutory allocations in the process of effecting the payments, the following guidelines are to enable designated banks make refunds of excess deductions to affected states.

“1.The CBN shall transfer the US Dollar amount allocated to the respective states to the offshore FEM of the designated banks.

“2. The banks shall credit the domiciliary account of the beneficiary state with the amount allocated to them as soon as the accounts are created.

“3. Any interest accruing to the amount from the date the banks are credited by the CBN to the date the funds are paid into the domiciliary account of the state shall be transferred to the beneficiary.

Furthermore, banks shall also pay appropriate interest on the balance in the domiciliary account pending utilisation of funds by the states.”

The circular, which was signed on behalf of the CBN`s Director of Foreign Operations by one J.J Aluko, however, stated that banks shall not be allowed to effect disbursement of funds from the accounts to their states in US dollar cash.

“Drawing from the accounts shall be made in naira at the prevailing inter-bank exchange rate on the date of the request from the state. However, states can utilise the funds in their accounts to effect offshore payments in respect of eligible transactions including opening of letters of credit subject to appropriate documentation and authorisation by the state governor,” the circular stated.

The three other pillars, which form the phase two of the CBN reforms, are the naira redenomination that was suspended last September, the current acc-ount liberalisation/convertibility and accession to article V111 of the International Monetary Fund (IMF) as well as inflation targeting for the conduct of Monetary Policy, which are billed to commence by January 1, 2009 respectively.

As a result of the structure and development of Nigeria`s financial system, the underdeveloped nature of the foreign exchange markets, as well as the restrictions on foreign exchange transactions, the CBN until last December had traditionally fully monetised the foreign currency receipts in the Federation Accounts, to be shared by the three tiers of government.

Initially, the CBN also maintained the accounts for all the tiers of government – as part of the liquidity management framework. Subsequently, as the banking system developed, the CBN allowed the share of the states and local governments to be deposited with the commercial banks.

Beside strengthening the naira, the dollarisation of states` allocation provides an additional instrument for effective liquidity management by the CBN. Given the fact that Nigeria earns dollar from its crude oil export, which constitutes more than 90 per cent of her earnings, if the apex bank disburses such funds to states in naira, it would have to print additional naira – thus pushing additional funds into the economy.

http://www.nigerianmuse.com/20080117163950zg/sections/spotlight-focus-on-issues/nigerias-revenue-allocations-cbn-now-pays-states-in-dollars/


This approach will naturally increase the demand for the dollar and weaken the naira, according to experts.

Firefire:



You imagine, the same CBN policy earlier placed an embargo on $ deposit.

jaymichael:
I was trying to understand the rationale behind that decision. I think it was misplaced. A mistake they realised and I think they have corrected but not without it's resultant effects.

989900:


You need to get the idea of the proposition to be able to contribute positively.
Dollar certificates; not currency.

Obiagelli:


So I ask again what will go wrong if we flood the economy with dollars?

LRNZH:
CBN does not have enough Dollars to 'flood' the markets. One of the reasons for the restriction on forex sales to certain importers.
Problem with over reliance on a commodity. Once the commodity price tanks, forex earnings plummet.

This is the short of it.

That is why economies are diversified in times of plenty and surplus earnings saved. This obviously did not happen when oil price was in excess of 80 USD/barrel under GEJ. Sorry I had to bring up Jonathan. It is what it is.

Obiagelli:
My problems with devaluing the naira:

Stock Exchange will loose its value by half

Landing cost of petrol will increase

Inflation! Inflation!! Inflation!!!

It will not in anyway improve export

Black market prices will continue to rise.

jaymichael:
The 'little' dollars earned is rationed to cater for the importation of essential commodities like medicines, raw materials and machinery at the official CBN rates are to stimulate local manufacturing and production. That is why some finished goods that can be produced locally were removed from "VALID FOR FOREX" list. Sourcing FOREX for their importation will have to be through BDC and the parallel market. There is no enough dollars to sell to the BDCs.
Look at this scenario, if the CBN sells out all the dollars in it's reserves to the BDC, where will they get dollars to sell to genuine importers of essential items like medicines and raw materials?
There is too much naira chasing scare dollars in the hands of the BDCs, hence the steady rise in the price of the dollars.

SirShymexx:


Lol. The question just doesn't make any sense whatsoever, since there's already a restrictive policy on FOREX in place, with a fixed artificial value for exchange rate. Flooding the country with dollars will just show that the CBN is clueless and it'll most likely lead to hyper-inflation.

I think a lot of folks don't understand how messed up the Nigerian economy is right now, especially with how depleted the foreign reserves are. The depletion of the foreign reserves takes away the "shock-absorber" that would've been used to negate the effects of the falling oil prices, since oil is the nucleus of the Nigerian economy, and everything else revolves around it.

The best thing to do is to ride it out, while the CBN keeps the artificial exchange rate, pending when the other sectors, can start thriving independently without oil. Thus making it a blessing in disguise. Or pray for the holy grail: the holy grail right now is for a major war to kick off in the middle east, perhaps, with Saudi Arabia and Turkey invading Syria, or any type of madness, that'll drive oil prices up. Apart from that: it's going to be a long hot summer.

This is a test for Buhari since he campaigned about change. If he can pull it off and use this to diversify the naija economy. Then he'll write his name in gold. But I won't bet on that. Or this might be the beginning of the implosion certain folks have been waiting for to balkanise the country. This is just the beginning of a long walk in the serengeti.

Shalom.

Obiagelli:

Do we earn oil money in naira?

LRNZH:


[b]Even when FG's forex earnings drop, their overhead usually does not. FG has to pay salaries and keep all arms of government functional. This is a reason why governments devalue their local currencies.

Say FG was earning 100B USD and it drops to 50B USD, by devaluing the local currency the 50B USD will have more local value and probably meet the local demands that the 100B USD was satisfying.

The problem is that for an import-based economy, if you devalue so much to satisfy government spending, it reduces how much can be imported. This can lead to a food crisis for example. This, I believe, is part of what PMB's government is seeking to avoid.

Devaluation is more beneficial to export based economies because the price of their commodity becomes cheaper internationally thereby stifling competitors. This is part of the Chinese strategy and it worked for them. They pegged the Remnibi at a lower than appropriate floating rate to fuel exports. That is partly why Chinese goods are relatively cheaper than goods from other countries.

I suspect the PMB government is hoping oil prices will recover sooner than later and reduce the pressure on Naira, since CBN will have more USD to spread around while his government diversifies the economy by increasing power supply, loan accessibility, reducing imports by fixing refineries. Another drain on our Forex is the war in the NE. We keep spending forex to 'buy' weapons to fight the insurgency.

PMB came at the most unfortunate time. But tough times bring out tough leaders.[/b]

Obiagelli:

Interesting, is it a case the CBN not having dollars or CBN restricting circulation as a policy

4Play:


That's actually true. In a hypothetical scenario where the CBN somehow manages to flood the economy with dollars, it will cause a short term rally in the Naira but not for long as the dollars will make its way out of the country.

sharpman1:


You don't seem to get it. There is NO Dollar to flood the market with.

Oil prices are low so Dollar inflows have dropped drastically. If the government continues to fund ALL dollar request with our reserves, it will b depleted to Zero in no time, then we are back to square one.

So....what th CBN is doing is to only fund what they believe is important dollar requirements and the ask people that need dollars for frivolous transactions to go source themselves. As long as demand for Dollar exceeds supply, Naira will continue to crash.

Firefire:


It resultant effect is now what we see in the extreme scarcity of USD, now at 391/$.