The foreign exchange (FX) market witnessed some volatility as Nigeria’s currency weakened and strengthened across market segments.
Also, the market saw the introduction of a new FX policy tagged “Naira 4 Dollar” scheme by the Central Bank of Nigeria (CBN).
Naira volatility on the black market
At the black market on Monday, the market opened with naira depreciating by 0.41 percent to N482 per dollar as against N480/$ it closed with the previous week.
The naira depreciation was as a result of strong demand by end users amid dollar shortage. The foreign exchange market has been under pressure since March 2020 following a sharp drop in oil prices as a result of the Covid-19 pandemic.
On Tuesday, the naira weakened by 0.41 percent to close at N484 compared to N482 traded on Monday. It steadied at N484/$ on Wednesday but regained strength on Thursday by 0.41 percent to close at N482 per dollar, from N484/$ on the previous day.
The naira appreciation on Thursday was as a result of improved liquidity. Over 5,000 Bureau De Change (BDC) operators received dollar disbursement from the CBN after funding their accounts on Wednesday. The apex bank sells $10,000 twice-weekly to over 5,000 BDCs.
On Friday, the local currency reversed the gain as it weakened by 0.62 percent to N485 per dollar compared to N482 on Thursday.
However, the naira was stable at N480 to the dollar at the BDC segment throughout the week.
CBN’s ‘Naira 4 Dollar’ scheme
Within the week, Nigerian banks commenced the implementation of the CBN’s new policy on diaspora remittances, tagged ‘Naira 4 Dollar’ scheme, which offers N5 for every dollar received into domiciliary accounts or as cash over the counter.
Last week Saturday, the CBN announced plans to pay N5 for every dollar received by all recipients of diaspora remittances through its licensed International Money Transfer Operators (IMTOs).
The move is an incentive introduced by the regulator to boost inflows of diaspora remittances into the country.
A circular dated March 5, 2021 and signed by A.S. Jibrin, for director of trade and exchange department, said the scheme would take effect from Monday, March 8, 2021, and end on Saturday, May 8, 2021.
The circular stated that the CBN would, through commercial banks, pay to remittance recipients the incentive of N5 for every USD1 remitted by sender and collected by designated beneficiary.
Impact of new policy
Aminu Gwadabe, president, Association of Bureau De Change Operators of Nigeria (ABCON), said it was too early to interrogate the impact of the new policy on the naira because “the result is actually yet to be felt in the market”.
However, the new policy is expected to reduce the cost of remittances and check round tripping.
Godwin Emefiele, governor of the CBN, explained that the move was also to increase the transparency of remittance inflows and reduce rent-seeking activities. He expressed optimism that the new policy measure would encourage banks and financial institutions to develop products and investments vehicles geared towards attracting investments from Nigerians in the diaspora.
Emefiele said the new policy is expected to enlarge the scope and scale of foreign exchange inflows into the country with a view to stabilising the exchange rate and supporting accretion to external reserves.
More importantly, he said it would provide an opportunity for Nigerians living abroad to make investments in their home country.
Liquidity improves
The foreign exchange turnover increased by 96.07 percent week-on-week to $63.88 million at the close of the trading week on Friday, from $32.58 million recorded on the opening day of the market, data compiled by BusinessDay from the FMDQ indicated.
The CBN continued its weekly interventions, injecting $100m via the Secondary Market Intervention Sales (SMIS) Wholesale Window with the aim of maintaining stability across the different segments of the market, according to a report by Afrinvest Securities Limited.
On the domestic front, external reserves declined by 0.7 percent ($249.1m) w/w to $34.7 billion, from $34.9bn last week.
Meanwhile, the price of Brent crude soared above $70.0/bbl on Monday, supported by OPEC+ decision to keep supply limited, and recently, reports of attacks on Saudi Arabian facilities. However, at the close of the week, Brent crude price traded flat at $69.39/bbl.
Investors and Exporters’ Forex Window
At the Investors and Exporters Forex Window (I&E), the naira opened at N411.64/$1.00 and closed at N410.00/$1.00 on Friday, appreciating N1.00 kobo w/w from N411.00/$1.00. Activity level in I&E Window rose 105.6 percent to $455.5m from $221.5 million recorded in the previous week, Afrinvest report stated.
End to instant online transfers from domiciliary accounts without documentation effective March 20
Some deposit money banks within the week notified their customers that they can no longer make instant online transfers out of their domiciliary accounts without proper documentation.
“This is to inform you that instant completion for international transfers on our digital platforms will cease from March 20, 2021. All international third-party transfers initiated on any of our digital channels will be completed at the back office after receipt of relevant supporting documents. Kindly ensure you send relevant supporting documents for your international transfers immediately transaction is initiated online to…” a statement from one of the banks said.
The bank also advised its customers on the type of supporting documents required.
“Samples of supporting documents to be provided for international transfers to third parties include Invoices, Bills, Demand Notes, among others.
“For medical, insurance, school fees, subscriptions and other similar invisible payments. For transparency and in line with the Central Bank eligibility requirement, purpose of payment must be clearly indicated for all international transfers in the narration section provided,” the bank said.
The CBN said in its foreign exchange manual that all payments in any foreign currency/security to or for the credit of any non-resident would be subject to completion of the appropriate foreign exchange forms with supporting documentation.
