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Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu - Business - Nairaland

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FX Crisis: Naira Depreciates By N130 Against Dollar In 24 Hours / Kingsley Moghalu Reveals The Problem With The Naira / Flutterwave Launches Swap To Solve Nigeria’s FX Problems, Backed By The CBN (2) (3) (4)

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Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by lalasticlala(m): 7:14pm On Sep 21, 2021
Thread - The #Ifekaego FX Tutorial:

The most important determinant of the value of the Naira is whether or not the Nigerian economy is productive and competitive in international trade. That is to say, whether it has a diversified base of complex, value added products it exports and earns forex from those exports.

I am not talking about diversification to cashew nuts and yam tubers. No. Those are primary commodities, not complex, value added ones that are the product of serious engineering and innovation. Since we obviously don’t have such an economy,
our main FX earner is crude oil, which gives us 90% of our FX. Unfortunately, we don’t control the price of crude. Its pricing is volatile and unstable as a result of various international political and economic factors.

This means that because we are essentially a one-product country, a one-trick pony, we are exposed to instability in our main income source. When the price of oil drops, and as the world innovates toward alternative energy sources, the amount of external reserves we have to back up the international value of our legal tender (our reserves) frequently comes under pressure.

It’s those reserves, our main defense in a soccer analogy, that determines the value of the Naira. This is why, among the five main objectives of @cenbank we have: “issue the legal tender currency in Nigeria”, and “maintain external reserves to safeguard the international value of the legal tender currency”. So if we don’t diversify but continue to rely on crude oil as a mono -product economy, the Naira crisis will get worse, not better.

Unfortunately, achieving a diversified, complex economy, especially in a resource dependent economy, is not easy. It requires a high level of knowledge, political will and consistency in economic policy and takes decades to achieve. This was the subject of my lecture a few months ago to the 2021 Annual Conference of the Nigerian Economics Students Association (NESA) held at the University of Port Harcourt, and will feature in my forthcoming book in 2022, The Pundit’s Mind.

There are other facts as well that affect the value of the Naira. These include the basic factor of supply and demand (if too much Naira is chasing scarce dollars, the dollar gets stronger relative to the Naira, and vice versa). Others are inflation (a high inflation economy such as Nigeria’s weakens the value of the legal tender), high government indebtedness ( again, our case especially relative to our revenues and ability to pay which will be stretched the more we borrow on poor revenues, and 90 kobo out of every N1 goes to debt servicing).

Speculation also affects the naira value, as there are currency traders around the world for whom the weakness of a currency is their very good fortune. Such traders “attack” such currencies for profit, especially where the currency is using a fixed, official exchange rate determined by the central bank instead of the market. As the Naira is effectively pegged officially to a “reserve” currency (dollars, euros, pound sterling), speculators can attack such a currency for profit if the country (Nigeria in this case) is perceived to have insufficient foreign reserves to meet demand. Because our inflation rates at 17% are way higher than those “reserve-currency” countries, again we are exposed to possible currency attacks.

If reserves are weak, and demand for dollars massively outstrips supply, currency devaluation is inevitable, and currency traders who mount speculative attacks profit from this devaluation. Such traders will borrow the Naira from Nigerian banks, convert it to, say, dollars, then buy short-interest paying Nigerian bonds. If, as the speculators anticipate, the central bank devalues the naira, the traders sell the bonds in the foreign currency, convert them into naira, and repay their original loan.

The steeper the devaluation the higher the speculator’s profit. What should we do about all of this? As I have said before, and say again, we have two options. One is to let the Naira find its level in the market. In order, words, @cenbank should stop subsidizing the currency.

While there will likely be an immediate spike in the price of the dollar, this move will have two advantages. The first is that, because Nigeria has a big, profitable economy and market, dollars will likely swamp the market seeking profits for investors.

When this happens, the laws of demand and supply will work in favor of the Naira. Alongside this, maintaining different exchange rates for different kinds of transactions must end. This is called rate convergence. The second, and more important benefit is that, since the current practice of the CBN pumping dollars in the FX market (from the reserves, which also depleted them) is essentially a subsidy for imports, which has made Nigeria more and more import dependent, letting go of the subsidy on the Naira will refocus the economy towards exports.

This will create an incentive for complex production of a quality that can be competitive in the international market. Accompanying this must be the right trade policies to support and create such incentives for massive exports of finished, value added goods from Nigeria.
If we don’t want to go this way, perhaps because of the political risk of an immediate further drop in the Naira value (which will recover in the medium to longer term if the right policies are pursued), we can consider dollarization of the Nigerian economy.
Here the dollar officially becomes a legal tender in Nigeria, either replacing the Naira or alongside it. Countries such as Panama, Liberia, Ecuador, Zimbabwe have done this.This’ll lower interest rates and help deepen the financial sector because we are a high inflation country.

But this carries serious consequences too. Nigeria will lose monetary autonomy (our central bank will no longer be able to take independent decisions on interest rates for example). The CBN will lose seigniorage, the revenues it earns from issuing currency from the difference between the face value of the Naira and its production cost. And of course, this will involve a loss of national prestige and independence. You could argue, of course, that what value is your prestige when your national economy is in tatters?

So, there we are, the simplified A-Z of our FX crisis. Either way, tough decisions have to be made. Politics is easy. Real leadership is not.
#Ends

https://threadreaderapp.com/thread/1439009262664044545.html

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Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by airminem(f): 7:16pm On Sep 21, 2021
Nice article

Shebi The purpose of the fx window was to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions smiley

7 Likes 2 Shares

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by nymphomaniac(m): 7:21pm On Sep 21, 2021
This is a good read. Enough of Nigerian leaders painting utopian endgames for our currency. We either do something about it or face a further steep decline of the naira.

Painfully, Meffy knows all these things but instead, chose to chase ABOKIFX.

The only hope for our Naira is for the government to sit up(embrace good leadership and reduce import /encourage export, stop loan collection) cut off the rottening arm (revoke BDC licenses and embrace rate convergence) and cauterize the wound (continue the path of 1 and 2 above) before it becomes too late.

Meanwhile, what is today’s $ to N rate sef?

38 Likes

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by Thinktwicemybro: 7:27pm On Sep 21, 2021
*CBN FX ISSUE: MY SUGGESTIONS*

Like it or not 90% of Nigerians are fraudulent and love quick money. I applaud the CBN from banning black market because they are the once increasing the dollar for no reason. This are my suggestions.

1. Banks should now have dollar account for customers.
2. Customers should be able to transfer naira to that dollar account and it will credit using the official rate of #410
3. Restrictions should be placed on that dollar account by which customers cannot witdraw more than a certain amount at a time.
4. Traveling customers who want BTA and PTA should transfer the money directly from their dollar account to their foreign account but the money will be in ledger and will be fully credited when the airline operator confirms the persons arrival to the country.
5. CBN should lunch payment on arrival policy for those who want to import goods.
6. Those who want to import large goods should inform the CBN, lodge the money into CBN, who will then pay for the goods once they arrive Nigeria.
7. Anything that can be produced in Nigeria should no longer be imported.

79 Likes 11 Shares

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by ecolime(m): 7:27pm On Sep 21, 2021
You cannot give what you don't have. We failed to diversify our economy when oil money was flowing in like water. Oil is gradually going out of fashion. No thanks to green energy, Covid-19, etc..

This is why I support collection of VAT by states. It will make every state look inward and be productive.

48 Likes 3 Shares

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by pendusky(m): 7:28pm On Sep 21, 2021
So a friend told me to open dollar account and buy and save more dollars as I can then in 2015 when the present administration came into power.

His word: dollar will rise to 600naira/$ and then the exchange rate was 1 USD = 199.257 NGN

Men I was like grin grin grin when they are promising us 1$/1N? I am not taking the risk brother.

Please what is today rate?
angry angry angry

Over to the Nairalanders cheesy

11 Likes

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by INTEGRITYA1(m): 7:29pm On Sep 21, 2021
Nice
Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by mu2sa2: 7:29pm On Sep 21, 2021
Too much girama!

1 Like

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by Aduroja123(m): 7:29pm On Sep 21, 2021
Nigeria in her present state doesn't need this man.

1 Like

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by socialmediaman: 7:29pm On Sep 21, 2021
The despot in Aso Rock will tell you that AbokiFx is causing our FX problems meanwhile he knows that his ban on Twitter and other stupid government policies are impacting foreign currency inflows, which will severely impact our FX rates

18 Likes 1 Share

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by Dialpad: 7:29pm On Sep 21, 2021
We need to produce rather than consume

5 Likes

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by Cholls(m): 7:29pm On Sep 21, 2021
My brother all those guys at Abokifx well done
Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by Teewhy2: 7:29pm On Sep 21, 2021
In as much we don't produce what we can consume in the country, this problem will still persist

5 Likes

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by thatsleepboy1: 7:29pm On Sep 21, 2021
Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by Bizibi(m): 7:30pm On Sep 21, 2021
Enough of the talk,we need action....

2 Likes

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by elmessiahs(m): 7:30pm On Sep 21, 2021
Aboki fx

1 Like

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by Nobody: 7:30pm On Sep 21, 2021
The world has moved on. Diversify or implode. Simple as ABC. In case you don't know, the world's top financial institutions are going to stop funding fossil fuel projects soon.

10 Likes 1 Share

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by Mikael0407(m): 7:30pm On Sep 21, 2021
undecided
Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by Hezzyluv: 7:31pm On Sep 21, 2021
Plus or minus, na bad governance.

1 Like

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by AmazingELixir: 7:31pm On Sep 21, 2021
undecided


I foresee many nairalanders jumping pass this thread....their patience for long read is as massive as a strand of hair.. grin

Ipob and container in high sea have damaged Nigerian currency...all the importation are done by Ipob they should allow them leave so that naira can get back her lost value.

3 Likes

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by wunmi590(m): 7:32pm On Sep 21, 2021
tongue
Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by tobenuel(m): 7:32pm On Sep 21, 2021
Now what's the way forward?
Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by Tonymexes: 7:32pm On Sep 21, 2021
Sound people like this should be running this country. Nigeria is an unfortunate place,ruled by hopeless idiots

13 Likes 3 Shares

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by AcademicWriter: 7:32pm On Sep 21, 2021
Nice
Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by Aduroja123(m): 7:33pm On Sep 21, 2021
I can feel some touches of the Build Innovate and Grow Excerpts here.

Thumbs up Prof!

5 Likes 1 Share

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by GreaterFuture(m): 7:33pm On Sep 21, 2021
Hmnnn


If you have USD for sale, larger volumes, good rate, reach me via Siggy.
Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by gambia(m): 7:33pm On Sep 21, 2021
Its well with this country
Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by theenchanter: 7:34pm On Sep 21, 2021
90% of nairalanders won't understand, that's certain.

8 Likes

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by TenQ: 7:34pm On Sep 21, 2021
lalasticlala:


https://threadreaderapp.com/thread/1439009262664044545.html
All Fiscal and Monetary policies have failed us.
Industrialization on an industrial scale is the solution.
Nigeria is a consumer nation and we must change the narration to a producing country.

There is no shortcut

Production is the KEY
Exportation is the KEY

11 Likes

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by bigbauer(m): 7:34pm On Sep 21, 2021
We're so obsessed with Dollar yeah I know it's the currency we do most international business with. But are we aware that one CFC is 900+NGN? That's almost ₦1000. NA Cameron money i dey talk so. Naira don finish o.

6 Likes

Re: Nigeria's FX Crisis: What You Should Know By Kingsley Moghalu by dingbang(m): 7:35pm On Sep 21, 2021
Meffyfx on the beat cheesy

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