Naira to Exchange at N197/$

The Central Bank of Nigeria, CBN, yesterday, in a bid to salvage the Naira from speculators scrapped the official window where it sells dollar to end users through banks twice a week. The Naira will now be sold at the ruling inter-bank market rate indicating an implicit devaluation of the currency. The Naira yesterday at the inter-bank market sold for N197 to the dollar.

Financial Market Dealers Quote, FMDQ, a group comprising Nigeria’s main commercial banks and the central bank, said commercial banks have also been banned from re-selling CBN dollars to other banks, another attempt to end speculation in the naira.

The CBN had at the liberalization of the economy opened the Whole Sale Dutch Auction but later replaced it with the Retail Dutch Auction System where banks bid for foreign exchange on behalf of their customers.

Scrapping its window of direct sale of foreign exchange

The CBN in scrapping its window of direct sale of foreign exchange to end users said all foreign exchange needs are to be sourced from the inter-bank market whose rate is N197 to a dollar.

This implies that Nigerians who need foreign exchange will now approach their banks and buy at the ruling rate. There had been about three different markets for purchasing foreign currency in the country.

These are the CBN window called the Retail Dutch Auction System, where the CBN sell dollars to end users twice a week at a much cheaper rate, the inter-bank where banks sell foreign exchange independently sourced by them at a higher rate, the bureau de change which margin is slightly higher than that of CBN, and the open market where small retailers sell forex on the streets at a more higher rate.

The existence of several markets has always given the impression that the Naira is over valued and some form of subsidy where those who buy from CBN sold at higher rate at the inter-bank market called round tripping.

The apex bank in a statement signed by its Director of Communication, Mr Ibrahim Mu’azu, yesterday said: “The managed float exchange rate regime, which the bank had adopted following the liberalisation of the foreign exchange market, has for the most part been successful in ensuring exchange rate stability in line with its mandate.

“In recent times, however, with the sharp decline in global oil prices and the resultant fall in the country’s foreign exchange earnings, the bank has observed a widening margin between the rates in the inter-bank and the RDAS window, thus engendering undesirable practices including round-tripping, speculative demand, rent-seeking, spurious demand, and inefficient use of scarce foreign exchange resources by economic agents.

“This has continued to put pressure on the nation’s foreign exchange reserves with no visible economic benefits to the productive sector of the economy and the general public.

“In view of the foregoing, it has become imperative that appropriate actions be taken to avert the emergence of a multiple exchange rate regime and preserve the country’s foreign exchange reserves.

 

Source: Vanguard