The unexpected increase in the value of the naira last week on the foreign currency market has been attributed by experts to the interaction of several variables.
Dr. Peter Ozo-Eson, a former general secretary of the Nigeria Labour Congress (NLC), thinks that the pressure on the naira in the black market would only last a short time.
He stated that the planned redesign of the naira will produce certain distortions in the money market, much like how it continues to confuse the general public.
The naira is expected to continue moving up and down until until January 31, when the old notes will stop being accepted as legal money, according to Ozo-Eson.
It has now been established that the naira’s appreciation had nothing to do with the unfounded rumor that the Federal Reserve of the United States of America intended to call back $100 bills by January 2023.
In fact, it is now obvious that currency hoarders, who are stockpiling dollars to avoid having to deposit cash into deposit money banks in accordance with CBN directives to refuse deposits above N5 million for new accounts and N50 million for old accounts, are probably actively involved in the naira movement as it develops.
Another reason is that traders took advantage of the abrupt increase to profit quickly, disregarding the impact on import costs and unforeseen repercussions on inflation.
Speculators who are unclear of what will happen and are attempting to avoid being caught on the downside of a market that has peaked are also experiencing a panic of uncertainty.
A rumor that the Central Bank of Nigeria (CBN) had given the markets $1 billion last week went unverified.
Kelvin Emmanuel, the chief executive officer of Dairy Hills Limited, cautioned caution, pointing out that the naira’s upward trend may be an increase in momentum rather than a development that can support medium or long-term planning.
He argued that the fundamentals that caused the naira to slide had not significantly changed over the previous two weeks, and he then questioned why the naira had suddenly started to rise.
He clarified: “The 24 per cent drop within 48 hours should not be celebrated because the fundamentals of a falling naira have not changed – rising subsidy payments, the disparity in rates that has shrunk the flow of Foreign Direct Investments (FDIs), dis-incentivization of companies from bringing back their NXP proceeds in line with RT200 programme.”
The danger of using a smokescreen of currency redesign to remove excess cash from circulation that resulted from a violation of section 38 of the CBN Act, he added, is that it could spark panic in the currency markets and lead to chaos in the markets, which would increase inflation. This is especially true given the $28 billion capital flight to dollar-denominated accounts.
He asserted, however, that the recent strengthening of the naira will not significantly affect already planned government training courses to be held abroad, noting that it is customary for civil servants to see to it that funds are not returned to the federation account after being used but are instead converted to duty tour allowances (DTAs).
He added that it’s unlikely that the United Arab Emirates government’s decision to restrict Nigerians’ access to visas will have an effect on such training.
“I also do not see the Visa row with the UAE impacting Nigerian civil servants, since it’s government-to-government, even though unconfirmed reports have it that the real reason the UAE government banned Nigerians from tourist Visa was as a result of the row on Emirates Airline ticket funds stuck in Nigeria, because the CBN has refused to provide USD at the official markets for repatriation, and had at the same time refused the airlines to sell tickets in USD in contravention of sections 20(5) of the CBN Act,” he stated.
Emmanuel noted that market pricing for products and food will be significantly influenced by rising inflation, particularly for those who are salaried.
His words: “The inflation in the price of goods as a result of instability in the exchange rate, especially for food and energy will deal a significant blow to government workers who earn a fixed salary, and whose purchasing power has dropped significantly as a result of the rule of 72 – the higher the inflation rate goes, the shorter time it takes for your currency and consequently your purchasing power to lose a 100 per cent of its value, which at 20.77 per cent, is three years and four months.”