CBN plans fresh measures to sanitise forex market

There are indications that the Central Bank of Nigeria (CBN) is exploring additional measures to tame wide speculation on the naira, which has continued to fuel arbitrage at the foreign exchange market.

One of the measures being considered, BusinessDay learnt, is the automation of the  foreign exchange market so as to ensure that transactions would essentially be conducted electronically, thereby eliminating usage of cash that had aided arbitrage and round-tripping in the market.

Besides, the apex bank is of the opinion that automation of the activities at the market would help it better track FX demand, supply and usage.

Apart from improvement in its surveilance and monitoring activities, the CBN is said to be working with the National Assembly to put in place stronger legislations that would better empower the Customs service to check FX flight through the borders, as the existing rules do not appear to completely to address this huge challenge, BusinessDay further gathered.

Godwin Emefiele, CBN governor is said to be having sleepless nights over the continued depreciation of the naira, which analysts say is without strong fundamentals other than speculation.

The naira closed at N202.72 on the interbank market on Friday, weaker than Thursday’s  close of N202.60 to the dollar. The unit traded at N226 against the greenback at the BDC market. 

The regulator is said to be disappointed that its Retail Dutch Auction System (RDAS) window set up in the first place to provide some sort of subsidy to genuine foreign exchange users and consequently cushion the effect on prices, had been grossly abused, even in the face of the bank’s in-built checks.

Speaking to BusinessDay in an interview, Moses Tule, CBN Director, Monetary Policy Department, confirmed this was the reason behind the closure of that official window some two weeks ago, as he signaled that may be the end of RDAS.

Tule said, “Remember, first, the creation of that window in itself is a child of circumstance and because of that, it was an abnormality in the sense that we did not need to have a preferential window for access to foreign exchange.

“But we felt that as a developing country, we needed to encourage our domestic industries to produce, improve their capacities and become competitive in the global market.

“But the window has been severely abused, sometimes by the manufacturers themselves, who access foreign exchange and refuse to bring back the proceeds. So there is no incentive on the Central Bank to say we are keeping the window continually open.

“Secondly, this decision has become necessary because of developments in the oil market. Our stock of reserves is dropping, we need to build reserves in order to sustain the running of the macroeconomy. That is very important.

“So, we are not saying that we are going to open the RDAS in a day or two, but the circumstances will dictate whether we even need to  bring back that window at all. Because first of all, Nigerians should be seen to have value  added when people are given some form of subsidy.

“But if that value added is not there, and the rest of the country is paying for it, then there is no need really,” he insisted, adding that what is important is to provide access to all genuine users of foreign exchange for their legitimate businesses.

Tule assured that the decision does not translate to shutting the access to foreign exchange, as the apex bank would continue to meet demand at the interbank market, where it thinks it is presently easier for it to monitor operations.

Tule also confirmed that the CBN has equally in the short term, tightened monitoring of the FX market and is more than ever, keeping its eye on the activities of market operators, all in a bid to check speculators’ damaging vices.

“We have not only improved the level of supervision, we have also improved the frequency of spot checks which of course  we do not announce. We try to look at the veracity of the documentations submitted by FX market operators- especially those that are demanding very high foreign exchange, and we may now want to see for instance, what you have brought in with what you demanded, your capacity and so on,” he explained.

Olakanmi Gbadamosi, director, trade and exchange, CBN, in a separate chat with BusinessDay said that the depreciating naira is now a source of serious worry to the CBN.

“Our eyes are on the market, we do not sleep over the matter because there are no strong fundamentals to support volatility in the FX market other than speculation,” Badamosi said .

“We are coming up with more measures and I bet you speculators will soon lose money”, he assured.

Onyinye Nwachukwu