FOREX SHORTAGE CAUSES THE NAIRA TO FALL TO N930/US$

There are signs that the currency problems that followed the foreign exchange market reforms in June 2023 may continue to exist as the Naira's parallel market devaluation continued Tuesday, falling from N925 in the middle of last week to N930/$1.

However, the exchange rate in the Investors and Exporters (I&E) market increased week over week from N775.6 to N758.1.

The difference between the parallel market rate and that of the I&E window is indicated by the current exchange rates as a rising parallel market premium.

The gap was N153.41 per dollar as of last Wednesday, but it increased to N171.9 per dollar by yesterday. This move has greatly increased the incentive for round-tripping and arbitrage in the ecology of the foreign exchange market.

Market watchers have also observed that Bureau de Changes, or BDCs, have not benefited the market as intended a month ago when the segment was reinstated into the Central Bank of Nigeria's (CBN) official trading window with the aim of allowing the market to be more open to independent forex supply and better access for lone retail end users.

Instead, the BDCs have bemoaned the fact that the lack of foreign money was a major factor in the local currency's recent decline.

According to a BDC operator who spoke with Vanguard, “even some Nigerians are unable to withdraw forex from their domiciliary accounts in banks” because to the extreme shortage.

He claimed that because banks are not selling to BDCs, the CBN's easing of the ban on the sale of foreign exchange to BDC operators has not been able to alleviate the shortage.

According to FMDQ data, the market started the day at N761.24 to the dollar, reaching a high of N807.15 and a low of N738, respectively. At the I&E window, foreign exchange transactions of $42.26 million were made.

According to the CBN, banks are in a position to gain from the potential for the change in the forex regime to significantly raise the naira value of banks' foreign currency (FCY) holdings and liabilities.

Deposit money banks, or DMBs, were ordered by the apex bank to avoid using profits from the naira's revaluation to fund their operations or pay dividends.

Some analysts of the financial markets

Prof. Uwalake recommends that CBN eliminate BDCs through mergers and acquisitions.

Prof. Uche Uwaleke, President of the Association of Capital Market Academics of Nigeria (ACMAN), commented on the renewed depreciation of the naira despite the lifting of the ban on the sale of foreign exchange to BDCs. He said: Recall that the ban was initially imposed due to the abuses associated with the sale of Foreign Exchange to BDCs due to their large and unmanageable number.

If the CBN has determined that there is a need to resume such transactions, it should first reduce the over 5000 BDCs to a manageable number of under 1000 by a regulatory-induced merger and acquisition.

Only then will the CBN be able to adequately oversee the BDCs; otherwise, the CBN will be left spinning its wheels.

Forex allocation to BDCs might not address scarcity, according to Adonri

David Adonri, an analyst and executive vice chairman at Highcap Securities Limited, also made a statement. He said: “Since BDCs are authorized retail dealers licensed by CBN, sale of forex to them is in order. ”However, CBN should endeavor to sell to all its authorized buyers at the prevailing open market price in order to avoid rent-seeking abuses. Although this U-turn might not address scarcity, it does level the playing field for FX market participants.

I doubt much will change for the better. Chiazor

Victor Chiazor, Head of Research and Investment at FSL Securities Limited, a different financial expert, stated: If the CBN genuinely had enough FX in its vaults, lifting the ban on sale of Forex to BDCs would have helped liquidity in the FX market.

But I don't think the Naira will be under any less pressure than it is right now.

The current situation is that the CBN does not have the necessary FX liquidity to meet the current FX demand in real terms because of our $33 billion in FX reserves and our much lower net liquid position, not to mention the backlog of FX payments owed to businesses.