Naira Depression and What Sanusi Can Do (II)c

By

Sampson Iroabuchi Onwuka


....There was also the issue of too much cash recurring from the 420 billion Naira injections to Nigerian banks and Muktar’s billions of dollars in expenses in months after the crash. Nobody gives account to the Federal Government and I mean these Northerners are becoming too reckless to be questioned on the allocation of federal resources. Such procedure however made the available bond that expensive and required short time decay to enable useful profit, which would only lead Naira to higher price level and not lower. That will also bring Naira closer to dollars in international markets and in spite of Nigeria performing with its international debts and obligations the Naira will continue a spiral downwards, and like what we have seen so far there will be redemption through Crude oil dollars to encourage stability. But Sanusi needn’t buy out the Naira at all he can block the recapitulation in dollars or any foreign company through Nigerian banks and he can correlate the rate of repatriation of foreign currency to be equal to currency rotation outside the inception, relative to money through crude oil. There is also the case of Crude oil dollars. There are other forms of soft conversion that should ease the fears with companies uncomfortable with long term investment in Nigeria. Case in point is what happened during Soludo’s administration when we owed the world nothing. The Naira was still doing badly leading Soludo to buy over 500 million dollars worth of Nigerian Naira at a time. But the downwards spiral continued. The reason he eventually figured out was the hemorrhaging was through foreign currency rotation in Nigeria. Soludo’s leniency was towards high dollar repository in Nigeria and its CBN, with a view of attracting businesses from around the world needing repatriation in dollars as necessary condition for investing in Nigeria, a path which denied the Naira a home court advantage…essentially lampooned on the Naira which could not take the ‘strain’. Secondly, there was no real measure to gauge the Naira independently and no real structure to block the flow of dollars and other foreign papers which made difficult understanding the warning signs. As such his first move was naturally to get rid of the parallel market. The exiting parallel market in Nigeria began to experience all kinds of trouble and resistance, and in the end, it was a case used by certain people against Soludo who attempted to replace the parallel market with direct auction, to curb the speculative bubble and foreign currency over price. Hence, there was an inflationary pressure on the Nigerian Naira, driven by the necessity to sale to a higher bidder. There was also the round table device which armed bankers with damaging ammunition to speculate freely, recklessly as become the case. Soludo was arguably forced out of office on this account and the issue of recapitulation.




1 posted on 07-19-2010, 05:41:07 AM Kaparak Re: Naira Depreciation And What Sanusi Can Do (ii) Mr. Iroabuchu, why waste paper and ink on this University of Khartoum (top-ten worst Universities in the world) alumnus who is totally clueless on what his role is. I mean, Nigeria cannot afford on-the-job-training for this kind of position. I have just read Sanusi's political diatribe he authored "POWER-SHIFT AND ROTATION: BETWEEN EMANCIPATION AND OBFUSCATION" in which he concluded, I quote “…Nigerians have be parasiting for three decades….” among chockfull of other grammatical errors. That amateurish article is totally lacking of original ideas that even a C- average primary school kid with access to a library of Nigerian newspapers could easily compile better “What I did during my School Break” essay. Perhaps we should send Sanusi back to school to learn not only how to construct logical sentences, spell correctly but most importantly, how to focus on his job in which he is scoring a solid F, at best. Professor Kperogi, where are you? Come and train one of your students on syntax, grammar, spelling, especially economics – we cannot take this anymore. posted on 07-19-2010, 10:26:31 AM Sampson onwuka iroabuchi Re: Naira Depreciation And What Sanusi Can Do (ii) Kaparak...

Sampson Onwuka's response

We are friends of Sanusi and the good Naira...there is need to continue to exchange ideas of what we can do to help our country. This is one easy way to accomplish it. There is a chinese saying...'big problem small solution' and we must take it very seriously that much of our economic problems in the ten years or so...is not without the capitulation on the Nigerian Naira.

Cheers...

Posted on 07-19-2010, 10:30:49 AM Oyeols Re: Naira Depreciation And What Sanusi Can Do (ii) This is an article that will work on the largely uneducated masses, but not on those of us who are well educated in finance and international economics. I am not here to defend anyone, but I think its unfair to blatantly mis-represent facts to the public. First of all the Naira has not spiralled downwards since Sanusi took over. This is a blatant untruth!! The naira has been stable at about $/N150 for about a year now. The Naira will gain once we begin to earn more dollas as a country via exports than we require to finance our imports. This was evident in 2007-2009, when as a result of huge inflows to invest in the stock market and bank re-capitalisation, most banks didn't even need to go to CBN for auction. Therefore the price went down and the exact reverse was the case when all the money went out again at the beginning of the recession. SIMPLE!! posted on 07-19-2010, 11:55:13 AM

Sampson onwuka iroabuchi Re: Naira Depreciation And What Sanusi Can Do (ii) @Oyeols.

...completely untrue. Naira will not gain nothing if there is higher importance of hard capital in the country. For christ that's the whole purpose of currency board...even here in US. That is to forstall unnecessary importation of currency to US.

Secondly...the Naira did not gain anything in 2007-2009, I mean it did not. I was very active up to 2008 and I can assure you that stabilization of Naira in those Soludo years was due to the falling price of USD. Most countries of the world...including Caribbean received a boost on their currency with a dampning of US dollars.

thirdly...there was the issue of the Oil price as convertible for Euro and inverse of dollars. Remember that oil rocked 150 dollars pe barrel before reverting to 40 dollars per barrel. Why did we experience such change in dollars price..at first Euro did very well and then went quite high because of huge repostory of Arab dollars from high earn oil.

There was availability of dollars in Nigeria up to 2008 due to its cheap assorted class of USD...which does not mean that huge dollars in Nigeria led to stability of Naira. The lack or 'plenitude' of dollars in any economy has no marginal effect of the local currency...it is the repository and the issue of rotation that independently determine the value of any currency in the world. Other issue of trade deficit and trade and so on, are means to enhancing the 'exchange rate' of the given currency out of which the value is hue.

You mentioned 2007-2009...I think it is very late case in the matters affecting Niara. I take 2007-2008 as pivotal case study...you must remember that the issue of world order through those was quite eminent, so eminent that Gold dealers were pretending at calling for a change in world money order. The Euro was a good candidate.

The casaulity of the short window was dollars...largely because the profit from crude oil at 150 dollars a barrel was offshored to Euro...in a sense the Euro perculated at the rise of crude oil and it at whinning down on dollars. Nigeria is oil producing economy and its currency was pegged to dollars... enjoyed brief period of stability because of earnings which ended in the pockets of derivitive Nigerian petrol managers and yet Nigeria made a lot of money from Crude leaving excess of dollars in rotation and of the ECA....

But then Crude oil prices dropped precipititiously from 150 to 40 dollars leading to a crisis of Naira at the tail end of Soludo years...Naira crisis due to the issue of strong and peculating dollars which forced US feds to lower Interest rate up to O%.

Assuming you argument had any use, what is the reason why the Naira did so badly in those 2008/2009 years, inspite of the very availability of the dollars.

Fourthly, you seem to discount the issue of a rising interest rate to Naira. Naira depreciation will fast forward when US interest start counting beyond the 1%. I hope you added that in your commentary on how Nigeria will do in terms of regaining US dollars. Don't think the shift from 148 to 150 this year alone is due to anything magic about CBN.

Even when the US went 0% interest...I am personally aware of the fact that CBN did not hedge at all. So what the point of the commentary.

Buying into the Naira in plain hard currency is largely inadequate to helm the skid of Nigerian Naira. It is an old practice that is not without effect but what makeS you think Nigeria is the only country doing it. More like someone reserving a typical point in the tick (?) and wait for the market to tick in from vanishing point yesterday. Of course others are doing the same thing and nothing that magic about it.

I did see anything you wrote about how the 'no' ball movement of world currency and interest rate is not directly responsible for Naira balancing effect.... posted on 07-19-2010, 19:34:35 PM Kaparak Re: Naira Depreciation And What Sanusi Can Do (ii) @Iroabuchi, the best way to support Sanusi, and by extension Nigeria, is to advise this “razzmatazz mambo-pambo-ride-the-Whitehorse” to keep his poker nose off politics and focus, solely, on economic theories to see if he could grasp the elementary fundamentals of monetary and fiscal policies that every 1st year MBA students learn in 4 weeks of Finance 101 to accomplish what he was appointed to do at the CBN. Until then, I am not sending my hard-earned dollars to Nigeria for him to negligently fritter away to the more astute foreign bankers who only dwell, 24/7, on how to improve the financial performance of their respective economies & leave politics to the politicians. If Sanusi cannot do that, then he should be merciful enough to quit for elective office, and let someone else that is more qualified and dedicated to finance & economics fill the spot. posted on 07-20-2010, 14:17:28 PM Sampson onwuka iroabuchi Re: Naira Depreciation And What Sanusi Can Do (ii) kaparak,
My fellow NVS...why don't you hammer out your argument on this Naira thing so that we crack the hole wide open. You write very well. I will like to read about new markets and economic theories...I mean reviewing Pat Utomi for the rest of us is a good way to start, given his interest in the Presidency...although there is not original about the economist. BUt he is from markets.

And not only him, there is need to review the chattered papers of Fashola on 'Agriculture' and the relevance of his article to Nigeria. Some of these people running for any useful office should have a platform from which to make their claims...given our status as a commercial economy

Cheers posted on 07-21-2010, 04:03:34 AM Oyeols Re: Naira Depreciation And What Sanusi Can Do (ii) @ Iroabuchi,

You have said a lot in your response, but you failed to answer my main issue for replying in the first place, which was my issue with your saying that "But since his inception, Naira has been on a down ward spiral". Sanusi was appointed CBN governor on June 3rd 2009. The CBN central rate as at JANUARY 14th 2009 (before Sanusi was appointed) was $/N149.5. As at JULY19th 2010 it is $/N148.2, so where is the downward spiral?????. The downward spiral occurred between NOVEMBER 28th 2008 $/N116.12 and JANUARY14th 2009 $/N149.5 when Soludo was in charge. And like I said that was caused by the massive outflux of forex when the worldwide recession started. Simple demand and supply!! In our case demand exceeded supply at that point so I don't understand what you mean by "Assuming you argument had any use, what is the reason why the Naira did so badly in those 2008/2009 years, inspite of the very availability of the dollars"? Which very availability are you referring to?

While I don't doubt that interest rates and international cross rates have an effect on the $/N rate, their impact is not as huge as the impact of demand and supply. Even abroad any currency trader will tell you of the impact of the "earnings season", where foreign companies (usually american)repratriate their profits home. At such times, due to the demand for dollars by say General Electric in Japan, you will see the Dollar/Yen rate go from say USD/JPY 107 to USD/JPY 115 as the dollar gains value. This is a clear example of the law of demand and supply on exchange rates!!

You also mentioned that " ...in view that Nigerian banking as they claim was a formerly corrupted house until Sanusi arriving". You make it sound as though the view that our banks are indeed not corrupt is incorrect! Trust me, they were very corrupt before Sanusi and they still are now, though probably less so. I used to work in a bank and in currency trading, so I know a thing or two about what goes on in there.

Anyway, this should not be an unnecessary back and forth. I just did not like your choice of words which misrepresented some facts about Sanusi. No doubt you are well educated, but that does not mean you are not wrong about certain things. No one knows it all. The important thing is that one is objective enough to see obvious errors and admit them. I don't know it all either. Economics is a diverse subject and if solutions were so obvious, all economists would have the same ideas and approach, but of course we know they never do, even in very intellectual societies like America. posted on 07-21-2010, 12:28:05 PM Sampson onwuka iroabuchi Re: Naira Depreciation And What Sanusi Can Do (ii) Oyeols...

You use the term 'blatant untruth'...about the down ward spiral on the Naira...Naira to dollars was at 148 at last year end and is today 150...what the 'blatant untruth'

Your initial reply...said

"This is an article that will work on the largely uneducated masses, but not on those of us who are well educated in finance and international economics. I am not here to defend anyone, but I think its unfair to blatantly mis-represent facts to the public. First of all the Naira has not spiralled downwards since Sanusi took over. This is a blatant untruth!! The naira has been stable at about $/N150 for about a year now. The Naira will gain once we begin to earn more dollas as a country via exports than we require to finance our imports. This was evident in 2007-2009, when as a result of huge inflows to invest in the stock market and bank re-capitalisation, most banks didn't even need to go to CBN for auction. Therefore the price went down and the exact reverse was the case when all the money went out again at the beginning of the recession. SIMPLE!!"

"The Naira will gain once we begin to earn more dollas as a country via exports than we require to finance our imports."

null

Am not what you mean by that.

In your next commentary we read...

"You have said a lot in your response, but you failed to answer my main issue for replying in the first place, which was my issue with your saying that "But since his inception, Naira has been on a down ward spiral". Sanusi was appointed CBN governor on June 3rd 2009. The CBN central rate as at JANUARY 14th 2009 (before Sanusi was appointed) was $/N149.5. As at JULY19th 2010 it is $/N148.2, so where is the downward spiral?????. The downward spiral occurred between NOVEMBER 28th 2008 $/N116.12 and JANUARY14th 2009 $/N149.5 when Soludo was in charge".

Can you explain why?

"And like I said that was caused by the massive outflux of forex when the worldwide recession started. Simple demand and supply!!"

Can correlate that with your initial commentary...and explain demand and supply in Currency terms.

"In our case demand exceeded supply at that point so I don't understand what you mean by "Assuming you argument had any use, what is the reason why the Naira did so badly in those 2008/2009 years, inspite of the very availability of the dollars"? Which very availability are you referring to?"

Am sure in your first commentary you mentioned the following

"The Naira will gain once we begin to earn more dollas as a country via exports than we require to finance our imports. This was evident in 2007-2009, when as a result of huge inflows to invest in the stock market and bank re-capitalisation, most banks didn't even need to go to CBN for auction. Therefore the price went down and the exact reverse was the case when all the money went out again at the beginning of the recession. SIMPLE!!"

We take it from this comment that availability of dollars equals depreciation of Naira or is it the reverse that you had in mind

Commentary 2

"While I don't doubt that interest rates and international cross rates have an effect on the $/N rate, their impact is not as huge as the impact of demand and supply. Even abroad any currency trader will tell you of the impact of the "earnings season", where foreign companies (usually american)repratriate their profits home. At such times, due to the demand for dollars by say General Electric in Japan, you will see the Dollar/Yen rate go from say USD/JPY 107 to USD/JPY 115 as the dollar gains value. This is a clear example of the law of demand and supply on exchange rates!!"

Clearly we can make the argument that demand and supply is the deciding quantity in Currency valuation. Now I wanna ask you clearly and concise to make a simple case about the Naira depreciation between 2008 and 2009...especially the Soludo years.

Your commentary 2.

"You also mentioned that " ...in view that Nigerian banking as they claim was a formerly corrupted house until Sanusi arriving". You make it sound as though the view that our banks are indeed not corrupt is incorrect! Trust me, they were very corrupt before Sanusi and they still are now, though probably less so. I used to work in a bank and in currency trading, so I know a thing or two about what goes on in there."

...well the issue of the statement 'as' 'they' 'claim' should mean entirely that it was 'as they claim' . What's hard to undertstand about that.

"Anyway, this should not be an unnecessary back and forth. I just did not like your choice of words which misrepresented some facts about Sanusi. No doubt you are well educated, but that does not mean you are not wrong about certain things."

clearly the issue is not about Sanusi's academic ability...the issue is not 'back and forth', the issue is a matter of coming to grasp with Sanusi...paying more attention to managerial function than Naira. Naira stabilizing DOES NOT MEAN that Naira is gaining.

If Sanusi has paid pivotal attention to the Naira, the currency would have taken a very positive appreciation given the current stagnation of US dollars. Naira stabilizing, does not in anyway mean that Nigerian CBN is doing anything exceptional. The oil since Sanusi's inception to office has appreciated. Is Nigeria Naira correlated to the dollars

"No one knows it all. The important thing is that one is objective enough to see obvious errors and admit them. I don't know it all either. Economics is a diverse subject and if solutions were so obvious, all economists would have the same ideas and approach, but of course we know they never do, even in very intellectual societies like America"

clearly there is a gap between the twof us. Largely enough...demand and supply has nothing to do with currency. Currency is a different economic dimension. Is like a third dimension which Americans and the English mastered a long time ago. Pounds, Dollars, and so on have no inherit value...pounds is also earned and therefore has no inherit bais.

In fact the shift from dollar correlation to gold to pure paper is the work of Arthur Burns lifting pages from John Maynard Keynes. Maynard Keynes arguments if followed carefully did not quite avoid Gold as 'junk'. Keynes never quite make the argument that the relationship between gold and money is negligible.

IOU is probably what you had in mind and of course its relationship to Junk bonds....It has potential value like Euro...which is not real currency. Like Chinese and Brazilian currencies which are 'pre-value' and set, which are intended to preserve wage and price and which are not real time currency. They do not float

But legal tender such as pounds and dollars and Nigerian Naira are the world greatest example of free market system. They float freely...they are currency per excellent. Their value and value alone is so kinetic, so dependent on usability that every move that dollars makes, must affect the Naira and the pounds. Every move that Naira makes must apply to USD.

If the Naira is stabilizing...it is not gaining, it is 'loosing' in future since the stability means that other factors 'will' affect the currency and positively USD is then negatively Nigerian Naira. Naira is at war with dollars, pounds, and so on and it must win them every day...every second, it must gain.

Moving currency to Nigeria via Western Union and company to pick up dollars and pounds in Nigeria, is Naira capitulation (which is also where you may be coming from supply demand paradigm) and is a losing positive on the Naira. We don't have to wait for a strong dollars through interest rate spike of the US Feds to understand that there is no hedge on the currency...the naira.

Naira is equal to the Euro, equal to the dollars, equal to the cedis and equal to any currency in the world. But their exchange rate - the 3rd dimension of market - make all the difference. The difference (we can compute the differentials) if so stretched is a summary of the deciding economic strategies of these countries.

So Oyeols...why don't to fire off on how to position