Aboki Fx, Cbn Governor, Godwin Emefiele, Oniwinde Adedotun

Aboki Fx, Cbn Governor

Aboki FX: How speculators attack, affect naira value —CBN ex-deputy gov Moghalu

Aboki FX: How speculators attack, affect naira value —CBN ex-deputy gov Moghalu

9/18/2021 7:50:00 PM

Aboki FX: How speculators attack, affect naira value —CBN ex-deputy gov Moghalu

A former CBN Deputy Governor Kingsley Moghalu, has said that currency speculators attack and affect the value of the naira.

“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.

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“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, subsidizing the currency. headtopics.com

“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 favour of the Naira. Alongside this, maintaining different exchange rates for different kinds of transactions must end. This is called rate convergence.”The former presidential candidate of the Young Progressive Party in the 2019 election also said that one of the best ways to strengthen the naira is to make the “right trade policies to support and create such incentives for massive exports of finished, value-added goods from Nigeria”.

“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.

Read more: The Punch Newspapers »

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