CBN wrangles abokiFX on economic manipulation - BUSINESSDAY
This year has witnessed several activities within the country’s apex banking authority in the quest to forge a more vibrant national economy.
While Nigeria and the rest of the world struggle to regain pre-pandemic equilibria, many countries are forced to develop appropriate fiscal and monetary policies that will drive real.
Before now, the country has been an object of international concern regarding its exchange rate position. Nigeria’s exchange rate environment hosts multiple windows whose rates vastly diverge, thus, creating room for arbitragers and round-tripping activities among individuals with a vested interest in the market.
With an economy heavily reliant on crude oil production whose proceeds contribute less than 10 percent to the nation’s gross domestic product (GDP) but constitute nearly all foreign exchange earnings and half of the government’s total revenue, Nigeria’s highly divergent FX window is seen as another deep sore buffeting the wellbeing of the nation.
On several occasions, the International Monetary Fund (IMF) had always preached the gospel of unifying the FX windows to increase confidence in the country’s external markets, remove distortions and increase transparency.
Furthermore, the country’s government has been pressured to lift restrictions in the FX market, which encouraged significant gaps between the official rates and others.
To achieve true FX unification and increase the inflow of foreign funds to the country, the CBN rolled out some policies that were expected to lure more foreign income through diaspora remittances and curb black-market activities in the foreign exchange market, respectively.
For instance, the CBN has devalued the naira against the dollar to push towards a single foreign exchange system for the local currency. In May, the apex bank adopted the Investors and Exporter’s (I&E) exchange window, which has averaged N410.25/$1 as against the formerly fixed rate of N379/$1.
However, in a bid to secure a more unified FX environment, the CBN seems to have pushed its limit too far. While the central bank’s disengagement with the Bureau de Change (BDC) operators with regards to foreign currency supplies may be seen as an attempt by the apex authority to clean up its mess in the FX game, the recent clampdown on abokiFX, a renowned foreign exchange information platform, is seen as a show of incompetence and a subtle excuse by the CBN for failing to deliver on its FX management mandate.
Last Friday, Mr Godwin Emefiele, the CBN governor, accused abokiFX of carrying out “an illegal activity that undermines the economy.”
According to the governor, the online FX information platform has contributed to the fall of the naira against the dollar at the parallel market. This, Emefiele regarded as economic manipulation by the online FX information platform.
However, the platform has returned the blow dealt on it by the CBN by claiming in a public response that the site functions as an information centre for parallel market rates and not for trading.
Many observers of this interesting event believe that the CBN will not achieve the goal of solving the country’s foreign exchange crisis by pointing fingers at information handlers. They believe that the CBN, being the sole proprietor of monetary management in the country, has more roles to play in correct policymaking than wrestling with private investors.
Pat Utomi, a former presidential candidate and political economist, believes that the current state of the national legal tender owes to poor policy making by the government authorities. He believes that the CBN should focus on its policy might in managing the economy rather than taking a harmless opponent to the boxing ring.
Utomi said, “As a general principle, I disagree with that approach. Of course, markets need to be regulated and have boundaries, but it is too easy to blame markets when sometimes the problem might be from within.
“I think there is nobody knowledgeable that does not know that for several years, policymakers were the biggest problem with the forex market.
“Let us not deceive ourselves; the current order has ruined the forex market, so for those who made such decisions to now complain, I think it is uncharitable. If they continue to clamp down on this and that, then the market would collapse, and we will return to where we were in the 1980s.”
Indeed, it is arguable to believe in the web platform’s innocence on this matter. Manipulating an economic outcome such as the price of a product will require the ability to influence the demand for and the supply of that product. With the ability to directly influence prices, rational agents are forced to respond accordingly.
Economic outcomes will naturally follow the order or direction of change as determined by the price maker. Suffice to say, an influencer can create scarcity or abundance, especially within a regulatory space that is weak, porous and vulnerable to opportunists who can play ball with the system.
In the absence of direct price control ability, it is not easy to push the narrative of an economic manipulator onto another.
Another point of view pushed by some people relates to the rational expectations theory in economics. Here, people may use their rationality, information available to them, and past experiences to make current decisions, ultimately affecting overall economic outcomes.
In this way, past and current FX information on abokiFX drives individuals’ current decision-making in the economy and anticipation of a future rise in dollar value may increase current demand for the same.
Ultimately, rates go up, even if other current economic conditions did not cause the price change. Given this, some experts believe that abokiFX’s information could proxy some semblance of influence with which the market may be manipulated.
In all, there seems to be a consensus about this burning matter: the CBN should focus on its mandate of ensuring monetary stability and safeguarding the international value of the legal tender. This can be achieved by making appropriate policies and ensuring that the business or monetary atmosphere is favourable for all.
If this is the case, then there will be no room for illegalities and economic manipulators in the first place.