Expert Calls Out Market Cabals Responsible for Naira Fall, Dollar Rise
- A financial expert has raised the question of the existence of a market cabal in Nigeria's forex market
- He asserts that the cabal is responsible for the downward spiral of the naira, which works in their favour
- He, however. added that until the market cabal is dismantled the naira might never be able to stabilise
Legit.ng journalist Victor Enengedi has over a decade's experience covering Energy, MSMEs, Technology and the stock market.
Lai Omotola, the Group Managing Director and Chief Executive Officer of the Confederated Facilitators Limited (CFL) Group of Companies, has stated that certain market cabals exert undue influence on Nigeria's economy.
Mr Omotola made these remarks during a media gathering commemorating the company's 25 years of operating in Nigeria.
His comment comes on the background of the naira plunging to a record low of N1,300/dollar in the parallel market and to about N837.49/ dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) official window.
Source: UGC
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Market cabals hinder the naira from growing
Omotola noted that a significant hindrance to growth lies in the activities of the market cabals who, primarily engage in speculative activities related to the Nigerian currency.
His argument centres around the notion that if there exists a substantial disparity of more than N300 in the exchange rate, speculators stand to reap substantial profits by acquiring foreign exchange from banks, potentially at the expense of the nation's economic progress.
According to Premium Times, Omotola said if fewer people are looking for the dollar, the value will depreciate, which exemplifies the principles of supply and demand.
He pointed out that when the current government implemented the floating of the naira, they aimed to ensure that the disparity between the official and parallel market exchange rates did not surpass N2.
Omotola said:
That’s the meaning of floating. But the government has forgotten that when you float the Naira, there is no dollar in the Central Bank of Nigeria, (CBN) to back that Naira.
Floating of naira without enough dollar benefits cabal
He added that when the naira is allowed to float freely and dollars are scarce, those possessing dollars gain an advantage. This often involves a market cabal with significant influence.
He said:
There is nothing called market forces in Nigeria’s economy. Nigeria’s economy is powered by market cabals. Regulating the currency has moved from the hands of the CBN to the hands of the market cabals.
Omotola said that in a situation where Nigeria needs $100 million to maintain a floating exchange rate system with the intent to narrow the gap between the official and parallel market rates to N2, the cabals are the ones with the money.
He said in this scenario, they might choose to inject only $50 million into the economy, thus exerting control over the foreign exchange market.
He added:
Now, when you release $50 million, demand for the dollar will become much higher, and the supply will become lower, thereby influencing and increasing the price of the dollar to Naira. CBN cannot intervene because there is no dollar.
He further emphasized that the market cabals consistently possess substantial reserves of the dollars, granting them the authority to control the quantity of the US currency introduced into the market, thereby reaping substantial profits from these practices.
Omotola's assertion, however, confirms that of John Aloma, who had told Legit.ng in an interview how the activities of bureau de change operators adversely affect the naira from strengthening.
Reacting to Omotola's comment, Malam Nuru Salami, a Bureau de Change operator in Lagos, said that contrary to the allegations of a market cabal, the unfortunate forex crisis is a case of demand and supply dynamics.
He said:
Assertions regarding the existence of a market cartel are largely based on conjecture and lack concrete evidence. The prevailing situation can be attributed to a straightforward issue of supply and demand.
The reality is that there is an insufficient supply of dollars within the system to meet the daily requirements of the populace.
When a larger number of individuals seek a limited supply of dollars, it naturally results in scarcity, leading to an appreciation of the dollar and a depreciation of the naira.
Thus, unless the Central Bank of Nigeria can introduce more dollars into the system, this unfortunate trend is likely to persist.
BDCs explain role of politicians, wealthy Nigerians in naira fall
In an earlier report by the CBN, the Association of Bureaux De Change Operators of Nigeria (ABCON) blamed politicians and affluent Nigerians as major factors contributing to the naira's weak performance in the foreign exchange markets.
Aminu Gwadabe, the President of ABCON, told Legit.ng that the forex market's pressure is primarily instigated by speculators who are capitalising on the elevated exchange rates.
He urged the Central Bank of Nigeria to display a heightened interest in and scrutinise the demands within the market.
Source: Legit.ng
