The Central Bank of Nigeria&#8217;s (CBN) May economic report, recently released, reveals a surge in foreign exchange inflow, reaching $6.03 billion, marking a significant 29.1% increase from the previous month. The data indicates robust economic performance with net inflows of $3.59 billion, showcasing a positive trend in the nation&#8217;s foreign exchange activity.



Despite the overall surge, the CBN experienced a decrease of 27.9% in foreign exchange inflows through the Bank, dropping to $1.70 billion from $2.36 billion in April. This shift resulted in a net outflow of $0.33 billion, contrasting with the net outflow of $0.03 billion in the preceding month.



The CBN report highlights a remarkable 87.2% increase in autonomous inflow, reaching $4.33 billion, demonstrating the resilience of external sources contributing to the country&#8217;s foreign exchange strength. While autonomous outflow also saw an uptick to $0.41 billion, the net inflow rose to $3.92 billion, surpassing the April figure of $2.05 billion. This positive trajectory indicates diverse channels contributing to Nigeria&#8217;s foreign exchange resilience.



Analyzing the intricacies of these fluctuations, economist Kelvin Emmanuel provides insights into the dynamics of Nigeria&#8217;s foreign exchange landscape, pointing out that the CBN report reveals a stark reality of disjointed FX markets in the country.



Emmanuel emphasizes that the autonomous FX flows, measuring inflows into Nigeria from sources outside registered government channels, have failed to bring about convergence in the parallel and Investors&#8217; and Exporters&#8217; (I&amp;E) markets.



&#8220;The real effective exchange rate (REER) does not accurately reflect the willing buyer, willing seller rate, contributing to the existing disparities in the FX markets,&#8221; says Emmanuel.



One key factor highlighted by the economist is the behavior of companies importing USD into Nigeria through autonomous sources. Rather than immediately discharging these funds into the I&amp;E markets, these companies prefer to retain their USD for internal FX operations. Emmanuel attributes this tendency to the substantial black-market premium, currently standing at 32.5%.



The economist stresses that addressing the challenges in the FX markets requires the CBN to take decisive actions. &#8220;Clearing outstanding FX forwards and reducing the incentive to divert funds from parallel markets to official markets is crucial,&#8221; states Emmanuel.



He further emphasizes that as long as companies find it more lucrative to hoard funds due to prevailing market conditions, the issue of disjointed FX markets is likely to persist.



However, financial expert and doctor of business administration, Iheakanwah Felix Arinzeh, expresses optimism to FORBES AFRICA about the findings, attributing the surge to various factors contributing to the nation&#8217;s economic resilience. &#8220;The increase in FX inflow can be attributed to factors such as increased oil production and exports, improved investor sentiment, and effective CBN interventions,&#8221; Arinzeh notes.



Arinzeh sees the surge in the share of autonomous inflows in the total FX influx as a positive indicator, signaling strong demand for Nigerian assets from foreign investors.



He emphasizes the significance of autonomous inflows, stemming from private sources like foreign direct investment and export proceeds. He highlights their resilience to fluctuations in oil prices, a crucial factor given Nigeria&#8217;s heavy reliance on oil as a primary source of foreign exchange earnings.



The surge in FX inflow is anticipated to yield several positive impacts on the Nigerian economy. These include improvements in the country&#8217;s balance of payments, bolstering foreign reserves, providing support for the naira, and enhancing the affordability of imports. However, Arinzeh cautions that the increase in FX inflow remains relatively fragile. He stresses the need for sustained efforts by the Nigerian government and the CBN to implement policies that support economic growth and maintain FX liquidity.

Naira Value Plunges on Street Amid ‘Stampede’ for Dollars

Central Bank of Nigeria Report Reveals Surge In Foreign Exchange Inflow To $10.7 Billion In Two Months

As if Zimbabwe doesn’t have enough problems, in October the government will try what could be an ill-fated experiment of printing so-called bond notes.
It’s a reaction to the shortage of US dollars that have been legal tender in Zimbabwe since the Zimbabwean dollar disappeared. The shortage is so bad the banks are trying to ration dollars.
“I can only withdraw US$100 a day and that’s if I’m lucky. I have to wake up very early in the morning to queue, otherwise there will be no money in the ATM. If I come late I can find even 60 or so people queuing,” says Tukudzwa Mutasa, who lives in Harare.
The southern African country has been unlucky, to say the least, when it comes to currency. It printed its way into hyperinflation and even introduced bearer cheques that carried and outlived their expiry date. In 2008, it suffered catastrophic hyperinflation and even had a one hundred trillion dollar bill which could be exchanged for US$0.40. Almost 10 years later, it is worth more as a souvenir on eBay, where you can buy it for US$70.
This all led to the Zimbabwean dollar being ditched and the country adopting up to nine currencies from other countries.
The US dollar is king in Zimbabwe. In 2009, 49% of people used the US dollar, 49% used the rand and 2% used other currencies. In 2016, 95% of people use the US dollar.
The Reserve Bank of Zimbabwe (RBZ) says the stronger US dollar is encouraging traders to take the currency out of the country.
“I can’t take the rand because it is weak. I buy the things I sell in South Africa and have to factor in costs, so I would rather sell in US dollars so that I make a little bit of profit otherwise I would be wasting my time,” says informal trader Chipo Dungare, in Harare.
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Into the mix, in October, come piles upon piles of what many see as worthless paper. Zimbabwe will use the gold standard, which is a monetary system where a country’s currency or paper money has a value directly backed by gold, to print its own version of the US dollar, called bond notes. There is a guarantee of US$200 million by the African Export-Import Bank (Afreximbank) to back the bond notes. The scheme will also reward people bringing foreign currency to the country with a 5% incentive on all foreign exchange receipts.
Reserve Bank Governor, John Mangudya, says the bond notes, like the US dollar, will come in $2, $5, $10 and $20 dominations. This is unlikely to convince people to use it.
“This is a shakedown; casino economy presided over by dangerous clowns who don’t see beyond today. How can you explain repeating a failed experiment of 2008 of printing dollar signs and figures on bond paper and declare that as currency? Really? Do these people learn at all?” asks political economist, Maxwell Saungweme.
“This is the return of the Zimbabwean dollar by another name. It won’t work. It will crash on day one,” says a Harare-based analyst who chose to remain anonymous for fear of victimization.
Former Finance Minister, Tendai Biti, called citizens to anger.
“The return of the Zimbabwean dollar marks the gross admission by this regime that it has failed, and failed in absolute terms, and that it will drag everyone along in the plunge to abyss that now awaits this economy. It is a cynical, disrespectful and contemptuous move that has absolutely no logic, sense or justification on any rational ground whatsoever,” writes Biti on his Facebook page.
“Zimbabwe is effectively a supermarket economy consuming goods produced in other countries. In 2014, its exports were US$3.7 billion against imports of US$6.3 billion. 2015 was no better; exports were $3.2 billion against imports of US$6.03 billion.”
Promise Mkwananzi, Director of Zimbabwe Informal Sector’s Organisation, says this policy reveals confusion.
“The tragic result is that there is already panic and despondency in the country. This will cause an unprecedented decline in FDIs already at its all-time low. This will see the Zimbabwean economy continuing to suffer,” he says.
But the people running Zimbabwe believe there is no problem.
“The bond notes are coming no matter what because we are trying to solve a problem here. The media exaggerates what is going on here in Zimbabwe. They talk about protests but I don’t even know what they are talking about. It’s always business as usual here and often I have to see in the news that there was a protest,” says spokesperson of the office of the president, George Charamba.
Along with the RBZ and the government, the Employers’ Confederation of Zimbabwe (EMCOZ) is behind the bond notes, but it has reservations.
“The consultations before the announcement, if any, were less than inclusive and the confusion and fear that was created could have been anticipated and, to a large degree, reduced if not avoided. It would have given business the necessary confidence if it had also been announced whether this is a short, medium-term or long-term measure and the fate of the bond notes once they have served their purpose,” says EMCOZ president Josephat Kahwema.
What is certain is that in October the banks will be full of freshly printed paper. You’ll know for sure whether it’s worthless when you go to spend it.

Tag: US dollars

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Central Bank of Nigeria Report Reveals Surge In Foreign Exchange Inflow To $10.7 Billion In Two Months

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