Naira struggles: The guns are out.

I haven’t written anything about the naira in a while. We all know the story. An oil price-crash induced dollar shortage has turned the CBN into a soviet style apparatchik, fixing prices and trying to wrestle the market to submission.

We thought the recession opened their eyes to the reality, and for a few weeks (or days for some) we actually believed they had abandoned the price fixing with the launch of the much acclaimed floating exchange rate policy. Then the truth came out that there were background tactics to fix the exchange rate. Confidence evaporated. The spread between the official and the black market returned at levels close to those of the low days of N199, with multiple rates in between. The pressures on the unsustainable fuel price and on inflation are back.

Yesterday the BDC rate (which is now different from the black market rate) miraculously crashed from N460 to N400 per dollar. What happened? Was this a Trump induced readjustment? Nope. The central bank, in collaboration with the secret service and the police force, got the major BDCs and their association in a room and basically told them to sell at N400 or else…

In a room somewhere Egypt is like “been there done that”. You might think these ideas of using the police or military to force markets to choose preferred prices work but the truth is they fail every single time. They failed in Egypt. They failed in Venezuela. They failed in Nigeria in the 1980s.

As I have argued for a while now, more rules just mean a bigger spread. A bigger spread means more incentives to break such rules. More rules with guns just mean an even bigger spread with the advantage tilted to other people with guns. In the interim people, who don’t want to play such games take their money elsewhere.

Once upon a time I thought that a regime change at the CBN would be enough to correct the policy direction and bring the confidence back. I no longer think so, mostly because it appears policy is being dictated by the federal government, probably not with advice from the economic team. Even if by some miracle Emefiele goes, this FG does not have the capacity or will to appoint someone who will be independent enough to say no to their demands.

Ladies and gentlemen: We are royally f****d.

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