NAIRA rebounds after recent drubbing   

Oct 30 (Lagos) - The Naira appreciated against the US Dollar on the so called parallel market to 1150 from 1310 levels late last week after traders worried that the recent drubbing of the local currency went a bit too far. The so called parallel market is the market where everyday people get to buy and sell forex, far away from the CBN which only sells to select categories and in restricted quantity. For example you ask them for $10 Dollars and they give you $1. The ex-CBN Governor is currently in EFCC custody. 

There is also a BDC market which hoards the Dollars from public and looks to profit from the depreciation while officially maintaining that they are the true distribution channel for forex. The Nigerian Bank's also similarly contribute to devaluation/depreciation of the Naira to shore profits for their employers and get rewarded to do that by employers. These banks stop growing organically years ago. If you look at the books of Nigerian banks & Insurance Companies, they are laughable as their source of profits is currency re-valuations. However local investors who have been decimated by the stock market keep lauding this up as it benefits them in terms of increased dividends in the local currency which they would use to buy more Dollars and keep contributing to devaluation/depreciation. 

The Naira had fallen to 1310 levels very fast and it was reminiscent of the last legs of an extended short attack that is often witnessed in stocks when you suddenly see a huge spike in price before a stock starts receding quickly. While this analogy is un-tested and is usually seen in stocks, our analyst thought that it reminded him of the same situation albeit for a currency. This reasoning may be flawed which only time would tell as other analysts still feel Naira will again depreciate while easykobo analyst does not agree with that sentiment. 

Now there will be a situation where speculators will be left holding the bag full of dollars. They will eventually have to sell to stop their losses. This is what is called covering in a short attach where they artificially sell the stock which leads to a huge spike and then they profit from the decline. However they have to cover at a level before it starts boomeranging on their portfolios. 

The Presidency has spoken about release of $10 billion backlog very soon and that is sure to evaporate the demand at the so called parallel market. Once the CBN starts supplying Dollars to importers of the 41 items, those importers no longer have to buy from the parallel market thereby evaporating the demand at that market. Eventually we could see one exchange rate across all these different markets that exist in Nigeria.

Overall in the world there is no shortage of Dollars, they are printed like newspapers in the US and people there complain about too much supply. Nigeria's Dollar problem is artificially created by a few to benefit themselves. If the Presidency is serious about breaking this problem, it can surely be done quickly. When speculators start losing, they will supply what they are hoarding. 

Maybe it can work, maybe it will not work and we will again be discussing another devaluation or depreciation but we hope and pray we will be discussing the opposite this time around. Its gone on for too long, the story is old now. Its become too easy for anyone to just buy Dollar and then wait for the next devaluation. Unless we are ready to turn into a Zimbabwe, this has to stop.

reporting for on Monday, Oct 30 2023 from Lagos, Nigeria 
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