‘Black Market’ Can’t Determine Value of Naira, Central Bank Governor Emefiele Insists

Central Bank of Nigeria Governor Godwin Emefiele on Tuesday said the parallel market – otherwise known as the black market – cannot be used to determine the true value of the country’s currency, as the value of the naira can only be determined by forces of demand and supply.

He further explained that the parallel market rate is high mainly because of the illicit activities of people using the dollar for bribery.

Describing the black market as tainted, he said it only accounted for 5% of total foreign exchange market share and can’t determine the worth of the naira.

He was reacting to recent statements by some analysts that the current official exchange rate should be about N480 to the US dollar, using the parallel market rate.

Rather, he said the official rate hovered between N380 and N387 at NAFEX.

Reacting to questions from journalists during the MPC meeting that the naira may currently be overvalued according to some experts, Emefiele expressed disappointment that analysts who ought to know chose to mislead Nigerians.

Reacting to calls for further devaluation of the currency, Emefiele said Nigeria had depreciated its currency this year by 28%, describing it as “a whopping depreciation compared to depreciation in some countries”.

He said: “And indeed, I heard some analysts talking about the parallel market, saying that the exchange rate is at N480. I want to say this that it is unfortunate and even unfair that even analysts who are supposed to know will play with numbers and begin to determine the exchange rate of our currency using parallel market rates.

“For the information of everybody, parallel market, as we know and from the data that we have, is a shallow market in Nigeria with not more than 5% of market share.

“Parallel market, and quote me, is a tainted market in Nigeria – where people who desire to deal in illegal exchange transactions, including sourcing of FX cash for purpose of offering bribe, corruption, that is where they deal.

“And that is where people who are supposed to understand the implication of this on economic activity on our country begin to go to television and say our exchange rate is N480.

“This is very unfortunate that this is the way those who are supposed to know try to bend numbers in this country. Parallel market is a market where people who don’t want to provide documentation to support their transactions deal in and cannot be a basis to determine the value of our currency.

“Everybody knows and it is accepted the NAFEX market, which is predominantly the I&E window is the market that should be used to determine the value of our naira.

“As far as we are concerned today, the NAFEX ranges from between N380 going to N386, N387 and we have been very open on the market price determination factors in that market.

“The central bank has no hand in the price determination in that market.”

According to him, India has depreciated its currency by 9%; Indonesia by 4%; South Africa by 9%; Russia by 22%; Nigeria by 24%; Brazil by 28%; Turkey 33% and Argentina by 35%.

He described the calls for naira depreciation as misplaced.

“I do not understand what and how people who are supposed to know will begin to crave for further depreciation of the currency. But we are saying even if the currency is overvalued, shouldn’t we go through a step-wise process where the shock can be less felt than those who are supposed to know how this works begin to create panic in the market by saying that the exchange rate of Nigeria is N480? It is very unfortunate.

“But on our side, we will continue to insist that the exchange rate is determined by forces of demand and supply in the NAFEX market. We do not agree that the determining factor for the exchange rate in Nigeria for our currency should be based on a market that is tainted;  a market where people go to offer bribes.

“You can imagine, you can pay any price to buy foreign exchange to pay a bribe. We are not going to be a party to that and we would continue to say this to anybody who cares to listen,” he added.