NAIRA weakened by 3.4 per cent at Lagos parallel markets on Wednesday afternoon, a day after the Central Bank of Nigeria (CBN) announced a ban on sale of foreign exchange to Bureau de Change (BDC) operators.
The market began with N505 to a dollar on Wednesday morning, but moved to N522/$ three to four hours later, according to Abokifx, which provides information on foreign exchange market rates.

The CBN website advertises the official dollar rate at N410.16, but access to FX at that rate it is limited. Most FX users in the country rely on BDCs or the parallel market for foreign transactions.

The demand for dollars is high in Nigeria as it is the commonest currency used in FX transactions.

“The CBN needs to give the market a chance. Its current approach would continue to deepen distortions in the economy, perpetuate round-tripping, fuel speculation, suppress forex supply and boost underground economy,” an economist and former Director-General of Lagos Chamber of Commercce and Industry Muda Yusuf told The ICIR.

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On Tuesday, the CBN Governor Godwin Emefiele halted dollar sales to BDCs in the country amid growing concerns for illicit financial transactions, dollar racketeering and other issues relating to economic sabotage.

Emefiele expressed worry that some stakeholders in the banking sub-sector were not helping the government in maintaining foreign exchange reserves through violation of some laid outlaws.

The market has reacted to the news, weakening naira, Africa’s largest economy’s currency.

Analysts have faulted the apex bank’s exchange rate regime, maintaining that it has created a huge enterprise around foreign exchange-round tripping, speculation,over-invoicing, and capital flights.

“What is happening in the foreign exchange market is a consequence of the CBN policy choice of a fixed exchange rate regime and administrative allocation of forex,” Yusuf said.

He explained that the action of the apex bank amounted to tackling the symptoms rather than dealing with the causative factors, regretting that the bank did not believe in the market mechanism.

He noted that market systems were time-tested instruments of efficient resource allocation in leading economies around the world, even though exceptions were recognised in economics and could be dealt with.

“Suppressing the market is like swimming against the tide. It is a difficult battle to win.
Moving retail forex transactions from BDCs to the banks is like kicking the can down the road. The same issues would manifest even with the banks. Managing a subsidy regime is typically a herculean task. We have seen this happen with fertiliser subsidy and petrol subsidy. The story cannot be different with foreign exchange,” he said.

He said the way out of the foreign exchange conundrum was for the CBN to allow the market to function.

READ MORE HERE: https://www.icirnigeria.org/down-down-down-goes-naira-at-n522/