Markets await framework for digitalisation of FX transactions

The financial markets are waiting for the unveiling of a framework that will detail the planned digitalisation of foreign exchange transactions announced recently by the Federal Government.

Wale Edun, minister of finance and coordinating minister of the economy, said last week that the Federal Government will in the near future automate transactions in the entire FX market to tame wide arbitrage and punish naira speculators.

A number of financial market operators and analysts do not know how the government intends to achieve this.

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“I don’t understand what they mean by digitalisation of forex transactions; maybe they will come up with a framework to that effect,” a Lagos-based economist told BusinessDay.

Tunde Abidoye, an equity research analyst at FBN Capital, said: “I’m not quite sure what they mean by digitalising FX transactions. I had assumed that most formal FX transactions were already digitalised.

“Unless, of course, they are trying to digitalise FX transactions for Bureaux de Change (BDCs), which would imply that they want to start capturing more details about BDCs with respect to the buyers and sellers.”

The Central Bank of Nigeria said it will continue to promote orderliness and professional conduct by all participants in the FX market to ensure market forces determine exchange rates on a willing buyer-willing seller principle.

Before strengthening to N1,200 per dollar on Friday, the naira had early last week hit a record low of N1,310/$ following strong demand on the parallel market, also known as black market.

Edun said all dealings in the FX market, from the official to the money changers where huge arbitrage has consistently occurred, will be thoroughly monitored and offenders fished out and punished.

“Digitalisation of the FX will bring about openness and transparency in the FX transaction and remove any form of irregularities which will foster stability in the FX market,” Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said.

For Aminu Gwadabe, president of Association of Bureau de Change Operators of Nigeria (ABCON), the digitalisation of the FX market is aimed at discouraging the use and movement of physical cash dollars in the economy.

He said it will create legalised online real-time trading platforms to challenge unlicensed trading platforms and illegal online platforms.

The recommendations of the tax and foreign exchange committee reforms to expand the FX market to include BDCs and mobile money apps, is the vehicle to actualise this policy, he said.

He said in order to continue to boost liquidity in the market, the already existing synergies between the fiscal and monetary authorities should be enhanced.

Gwadabe said: “Apparently as we observed the positive impacts on the value of our local currency from the news of both the $10 billion expected inflows and inclusion of the BDCs, it is germane that the CBN democratise and centralise the markets for participants to achieve price discovery, transparency and ease of regulatory supervision.

“Thirdly, there is no empirical evidence to back up the mindless race of our currency depreciation. It is all about illegal economic behaviours of speculators, attack, currency substitution and speculation.

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“Also, there should be review of domiciliary account regulation where frequencies and volume of deposits into domiciliary foreign currency accounts can be reduced to a minimum.”

The CBN reiterated that the prevailing FX rates should be referenced from platforms such as its website, FMDQ, and other recognised or appointed trading systems to promote price discovery, transparency, and credibility in the FX rates.

As part of its responsibility to ensure price stability, the central bank will boost liquidity in the FX market by interventions from time to time. As market liquidity improves, the CBN said its interventions will gradually decrease.