CBN Scam: Mopping up Naira

The size of the Central Bank of Nigeria (CBN) Scam to artificially support the Naira exchange rate is now clear. The CBN has spent N2.9trillion, USD8bn, on open market operations (OMO) in the last seven months.

OMO is a market manipulation method of CBN offering to buy Naira from banks and wealthy individuals at high interest rates (in this case around 17.5 to 18.5). This takes Naira out of supply in the short term meaning that there are fewer Naira in circulation to chase dollars.

This in turn should keep the value of the Naira higher.

Nigerians have been sold the success story by the Federal Government of the strengthening of the Naira whilst the foreign reserves continue to rise.

This conundrum has long picked at some analysts as the fundamentals suggest the Naira should be weaker than ever.

The truth is now clear – CBN is supporting the naira in the short term by getting into more debt (for that is what open market operations amounts to).

Not only is this hidden debt disastrous and costing citizens dearly in terms of the interest that has to be paid, but it also means banks tie their Naira up on these safe high yielding investments instead of lending to the real economy.

This is actively preventing diversification of the economy and storing up a greater bomb shell for the future.

The CBN Scam is contrary to their started objectives and is not helping anyone except the FG who can say they are maintaining Naira exchange rates through economic policy.

The amount of money being pumped in by the CBN this year (ignoring the interest payable) is close to USD 2bn every month, totalling USD14bn.

Imagine what could have been achieved with USD14bn injected into the real economy.

Ordinary Nigerians are cheated again.

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