The widening margin of between N95/N108 on every dollar exchanged at the unofficial exchange market is making currency speculators shy away from making foreign exchange cash deposits into their domiciliary accounts, Business Day investigations have revealed.
The implication is that those with foreign currencies are rather buying the local currency, since it gives them over 40 percent additional naira, as against a few days ago, due to the current volatility in the forex market.
The rent seeking and speculative activities have continued to mount pressure on the nation’scurrency with the naira exchanging for N295/$ yesterday. This is against the exchange rate of N305/$ last week. The official rate stands at 197/$.
The development is making customers hold on to their dollars and exchanging it for the naira, rather than depositing it in their domiciliary accounts, despite recent review by the Central Bank of Nigeria (CBN) after six months of stopping banks from accepting forex cash deposits into customers ‘domiciliary accounts.
Some analysts said last night that despite the review of some forex market rules by the CBN recently, there is need for further liberation of the market for a two-way quote interbank trading so that the law of supply and demand can come into play.
Bolade Agbola, executive director Cashcraft Asset Management, limited said, “The larger the margin between the official and parall markets, the greater the incentive to do round-tripping as it becomes more lucrative. It is the responsibility of CBN to limit the margin, as it is creating another rent that would distort the economy.
“By removing the restriction on FCY cash deposits, the CBN has provided a platform for Deposit Money Banks (DMBs) to re-engage FCY customers with the aim of mopping up FCY cash outside the banking system for effective monetary policy operations. Butthe FX supplies via a vibrant two way quote interbank foreign exchange market, remains a big issue that the CBN needs to address in order to consolidate its efforts on foreign exchange management,’ Say Ecobank analysts.
“Let there be no two markets. Let demand and supply detect the exchange rate. As long as the CBN continues to determine the rate, there will always be round-tripping”, an industry operator told BusinessDay by phone.
On whether the current development requires further liberalisation despite the CBN’s review, Razia Khan, managing director, chief economist, Africa global research, Standard Chartered Bank, London, said, “The short answer is ‘yes’. The Nigerian economy still needs some level of FX flexibility to be able to deal with the current oilshock. It would be a different story if it had sizeable accumulated savings and could commit to running down FX reserves to maintain a fixed exchange rate. But it does not have sizeable reserves.”
Johnson Chukwu, managing director, Cowry Asset Management Limited said,”The solution to this allegation of round-tripping of foreign exchange is for the Central Bank to harmonise the several market segments by deregulating the official market.
“Should CBN liberalise the official market,the exchange rate in that market segment will adjust downwards towards the parallel market rate which will in turn adjust upwards such that there will be a convergence range where the margin between the official rate and the parallel rate will be minimal.
This convergence will eliminate the incentives for round tripping, as well as ensure that the naira is more appropriately priced, as to encourage inflows from foreign investors.” The CBN had in August last year, banned the payment of cash domiciliary accounts, in a bid to stop illicit financial flows in the banking system.
The ban was however lifted last week, with CBN reviewing some of the market rules, like allowing banks accept deposits and stoppage of allocation of forex to the Bureau De Change(BDC) segment of the market.
Friday Ameh, an energy analyst, said “Of what essence is keeping your dollars in your account, when naira was exchanging for between N295 and even N305 against the dollar lastweek. $1,000 dollars can give me close to N300,000 now. So what is the relevance of relaxing the rules on deposits, except for few importers, who need to importsome items into the country?”
JohnOmachonu
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