The decision by the Central Bank of Nigeria (CBN) to close down its official market and channel all official forex demand to the interbank market has been
described as a de facto devaluation of the naira.

According to Reuters, following the scrapping of the bi-weekly currency auction market, the naira will now
N198 to a dollar, unveiling a de facto devaluation of the currency of Africa’s biggest economy and top
oil producer.

FMDQ, a group comprising Nigeria’s main commercial banks and the central bank, said commercial banks had also been banned from
re-selling central bank dollars to other banks,another attempt to end speculation in the naira.

Also, commenting on the decision to close the RDAS, Razia Khan, an analyst at Standard Chartered Bank,
who is based in London, stated in a report titled: “Nigeria stops RDAS FX sales,” obtained by TheCable, stated that “this is an effective devaluation of the official Nigerian naira exchange rate.”

“With Nigeria forex reserves under pressure as a result of weaker oil prices, markets had anticipated
eventual unification of Nigeria’s different exchange rates. Following the announcement in February that
presidential and parliamentary elections would be postponed to 28 March, Nigerian markets were subject to greater volatility.

“Naira losses were frequently large enough to trigger a daily shutdown of Nigeria’s FX market. In response
to these pressures, the CBN intervened directly through special auctions, filling demand for FX directly, but at a much higher dollar-naira exchange rate than that prevailing at the bi-weekly official RDAS.

“With FX reserves under pressure, and amid growing concern that a wide RDAS-interbank spread would
encourage ‘round-tripping’, the CBN will now stop RDAS auctions, effectively discontinuing its FX subsidy for certain categories of demand. This is positive news, and should help create more
transparency in the Nigerian market.

However, with oil prices currently at levels where FX reserves will be difficult to replenish, the CBN’s appetite for continued support of the interbank
m FX rate will be closely monitored,” she explained.

source: http://www.thecable.ng/1-n198-de-facto-devaluation