Opinion: Of Dogs and Merchants of Hot Money, By Uddin Ifeanyi
The pertinent question is not so much, then, why we are offering these many backhanders to foreign portfolio investors. It is rather “Who will bear the costs arising from this policy?” And what are these costs? As we speak, a large part of the balance on our gross external reserves comprises portfolio investors’ dollars – waiting to leave.
Now, with those assumptions safely tucked away, we may return to the mechanics of portfolio investment here. Our investor comes into the country. Obtains her certificate of capital importation. Buys treasury bills. Gets a custodian to warehouse these. And finds a bank through which to buy those foreign exchange futures. The whole point of this final manoeuvre is to hedge her bet against exchange risk.
What the CBN has done, therefore, in pricing its first five-year futures settlement contract at N379.81 is to check all these boxes. An investment in treasury bills today will expect on its way out of the country in the next five years, to depart at an exchange rate of US$1:N379.81. A decent markup on the prevailing US$1:N360, you’d argue? Apparently. But look closer at the details, and the story that emerges is less salubrious.
Those who argue the corner on behalf of our current monetary policy pivot are wont to dismiss objections to it as a self-evident case of giving a dog a bad name in order, eventually, to hang it. Yet, this reluctance to call out the pooch for fear that it might be hanged is scant reason to allow our economy go to the dogs.
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