• Central bank pumps another $200m into market, considers window for portfolio investors, multinationals
Unrelenting currency speculators and traffickers have continued to evolve strategies to ensure that they frustrate the Central Bank of Nigeria’s (CBN) objectives of achieving exchange rate stability and convergence in the economy.
Investigations by THISDAY have shown that several currency speculators, who got their fingers burnt as a result of the new foreign exchange (FX) policy measures and the sustained dollar injection by the central bank since February, have continued to resist the policy measures and are devising ways to manipulate the market.
Owing to the speculative attacks on the naira, the local currency which strengthened to N385 two weeks ago on the back of fewer dollar interventions by the CBN, continued its free fall closing at N410 to the dollar, compared to N405 from the previous day.
A currency trader, who pleaded to remain anonymous, alleged that some currency speculators now connive with bank officials to generate fake airline tickets just to enable them access personal travel allowances. These funds are thereafter sold on the parallel market.
Also, THISDAY findings showed that latent demand for FX, coupled with illicit funds from public office holders and others chasing few dollars, have contributed to the wild fluctuation of the naira on the parallel market in the past few days, despite the sustained intervention by the CBN.
In addition, THISDAY learnt that due to the anticipated devaluation of the naira in the short-term, a lot of banks have been holding back their dollar cash in order to make a kill when the local currency is devalued.
Furthermore, the sale of tickets at a discounted dollar price by some international airlines has also contributed to the surge in dollar demand observed in the market recently, as passengers have rushed to buy the greenback for their summer holidays and for their children schooling overseas.
Speaking in an interview with THISDAY, the President, Association of Bureau de Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, confirmed that the activities of speculators and currency traffickers were having a negative effect on the market.
“We believe that there is a lot of illegal money in the economy being used to distort the market. When you have such funds that cannot pass through the banking system, if they tell you that the naira exchange rate is N500/$1, you can buy, just for you to frustrate the system.
“Most of the funds that cannot be kept in the banks have found their way into the parallel market. Also, I agree that speculators are still strategising because they have lost money and so they can’t just go away like that.
“Sometimes they (currency speculators) come up with propaganda saying that the CBN is not selling dollars to BDCs; CBN cannot sustain this policy, etc, and this kind of misinformation affects the rate,” the ABCON boss said.
Gwadabe recently blamed the depreciation of the naira on speculators’ onslaught and resistance by some banks.
He urged the CBN to sponsor a bill at the National Assembly to make the naira the convertible currency in West Africa.
Similarly, an analyst at Ecobank Nigeria, Kunle Ezun, who agreed that the activities of currency speculators were responsible for the volatility on the parallel market, advised the central bank to “take its mind off the parallel market”.
“It is a market it cannot control. It is an informal market. There is no way the CBN can control the naira exchange rate on the parallel market because they (CBN) does not even know the depth of that market,” he said.
However, Ezun disagreed that the central bank might devalue the naira in the short-term.
“I don’t foresee a devaluation in the short-term because the CBN has a lot of exposure on its FX futures market. Once you devalue, the strike of the FX futures would go up to mirror the new rate and would hit the CBN negatively,” he said.
The CBN on Monday announced that it was opening a special foreign exchange (FX) window for small and medium scale enterprises (SMEs).
The initiative, according to the central bank, would enable businesses import eligible finished and semi-finished items not exceeding $20,000 for each operator per quarter.
The central bank has intervened in the FX market to the tune of over $3 billion for both retail invisibles and wholesale forwards since February this year.
Towards this end, SMEs on Tuesday got some relief when the CBN offered $100 million to small and medium businesses through spot sales from its new FX window for them.
Also on Tuesday, the CBN released its results of 7-30 days forward auctions of $100 million, just as it disclosed that authorised dealers subscribed fully to its offer on Monday.
CBN spokesman Isaac Okorafor disclosed this, saying that the new window for SMEs provides small scale importers an avenue to source FX to boost their respective businesses through the importation of eligible finished and semi-finished items.
He, however, restated that no SME would be allowed to transact more than $20,000 per quarter.
Also, some authoritative sources at the CBN disclosed that as part of efforts to boost FX supply, the CBN would soon not only begin FX auctions on the spot market, but also open a special window for investors to trade freely for certain eligible transactions, particularly dividends and investment remittances.
A CBN source was also optimistic that with the current level of foreign reserves, the CBN has the capacity to sustain supply even if it has to keep doing so for the next three months.
He pointed out that the central bank survived last September when reserves were as low as $24 billion, reasoning that the gap between then and now stands at over $6 billion.
The current foreign reserves, he explained, could sustain the market for a long time, supported by the steady accretion from global oil prices and relative peace in the Niger Delta that has enabled Nigeria to ramp up oil production.
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