Ban On Use Of CBN's Dollars By Oil Companies - Business - Nairaland
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| Ban On Use Of CBN's Dollars By Oil Companies by phredbongg(m): 7:24pm On Oct 07, 2011 |
CBN just banned oil companies from using its dollars to fund imports. They have been advised to use their foreign exchange which they receive from the exports of their products. Does this mean that CBN's forex reserves is different from that of oil companies? Please, what does this mean and what does it portend for the economy of Nigeria. Thanks. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by babaowo: 8:25pm On Oct 07, 2011 |
bureau de change level, |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by MrWhy1(m): 8:39pm On Oct 07, 2011 |
Good question. From my understanding, it is a good policy move on the part of CBN. The CBN forex reserves is vital for the stability and strengthening of the naira by regulating the money supply. There is limited amount of hard currencies in circulation and should be left for average Nigerians that needs it for international trade and other things. Meanwhile, if these oil companies, most of whom are foreign, are left to purchase huge chunk of forex that was pump into the economy by the CBN to benefit the common man, it will increase the value of hard currencies and the Naira will depreciate, thereby causing inflation, eroding the value of your savings and wages. Since we import most of what we use, the importers who supposedly bought hard currencies at higher rate will increase the prices of their items and it will ultimately affect budgets of many Nigerian households. But the core facts remain that we need to diversify our economy to attract more foreign exchange and more importantly prop up our manufacturing industry for a long term solution. CBN is always hanging in the balance because we rely hugely on foreign exchange we get from our crude exports which is a very very volatile source. That is my 2cent bro. 1 Like |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by ogasir2011: 8:49pm On Oct 07, 2011 |
This will be the best, thing Sanusi will do,if it comes to effect. Now wat that means is dat, Oil companies will no long bid for Dollars from Central Bank, proceeds from their Oil exports will mean,they don't have to bid for dollars at the DAS(Dutch Auction System)- this is a System that CBN use to sell dollars to BDC,Oil Companies,Govt etc Thru Commercial Banks. Oil Companies over the Years happen to be the bigger buyers of Dollars at the DAS. Higher demand for the Dollar means weaken of the Naira( demand and supply theory of economic). Now if CBN enforces this transaction dynamics for Oil company this will mean that buyers of their crude will pay the Oil company dollars directly into their accounts, meaning they don't need to bid for dollars at the DAS, in that case their bankers in the Nigeria don't necessary have to to pay the Oil companies in Nigeria wit dollars, they pay them equivalent in naira. In a case the oil company need to transact with other foreign banks, the commecial need not go to CBN to bid for dollars to consumate their transactions. They money in their account is already dollars so there wire it straight. The benefit to the economy: Less demand for Dollar thus strengthening the naira. The only pple that will be bid for dollars will be individuals(BTA,PTA); importing Companies (Form M). Government also fall under (PTA and BTA) With the advent of Dual currency VISA and Mastercard( cash less economy by 2012) the demand for PTA and BTA will automatically reduce. This will further improve the naira. For the case of importer( Form M) the big banks in Nigeria Have Branches in CHINA,USA,South Africa etc so when in importer want to buy from such contries they don't need to bid for dollars(they simply process the form M, and pay the expoter in the equivalent of the local currency). With all these the dollar will gradually begin to weaken, because the demand for it will fall. GOOD MOVE FOR NIGERIAN ECONOMY. 1 Like |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by Nobody: 8:49pm On Oct 07, 2011 |
The Feds gives fx quota to each BDC, the volume of dollars pushed into the system is what determines the economics dynamics of the Nigerian Economy. OIl companies under NNPC produce oil and shares to Feds and take their share. 1 Like |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by horny4u(f): 8:52pm On Oct 07, 2011 |
ogasir2011:  Thank you for your analysis. Good to process it in plain English. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by Seun(m): 9:35pm On Oct 07, 2011 |
I don't think such measures can prevent the naira from falling. Demand and supply will always prevail. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by mathskill: 9:44pm On Oct 07, 2011 |
Seun:No one is suggesting dd and ss wont prevail but that dd will reduce since the oil companies would have had their dollar at hand which automatically translates into less pressure on the Naira. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by Seun(m): 9:49pm On Oct 07, 2011 |
I don't see how changing the source of the dollar will affect anything on the long run. Don't get it. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by kizito96(m): 9:51pm On Oct 07, 2011 |
Good Move Sanusi, These oil companies think we are fools, they stock up the proceeds on their export and put pressure on our foreign reserve meant to benefit our local importers. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by Teetomania: 10:01pm On Oct 07, 2011 |
9ice move,healthy for the Naira! |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by kettlejnr: 10:28pm On Oct 07, 2011 |
http://www.businessweek.com/news/2011-10-07/nigeria-central-bank-bans-oil-groups-from-buying-dollars.html Nigeria’s naira gained the most in two years against the dollar in interbank trading after the central bank stopped foreign-currency purchases by oil-exporting companies at its twice-weekly auctions. The currency of Africa’s biggest oil producer strengthened by 2.44 percent to 160.15 per dollar at 4 p.m. in Lagos, the biggest intraday appreciation since Oct. 2, 2009, according to data compiled by Bloomberg. The central bank yesterday banned companies that export crude oil from the auctions, directing them to use their export proceeds to meet their dollar needs. “Traders speculate that dollar demand will fall next week due to the new rule,” Babatunde Obaniyi, an analyst at Greenwich Trust Ltd., a Lagos-based investment company, said today by phone. The central bank has been using foreign-currency reserves to keep the naira within a 3 percentage-point band above or below 150 per dollar at its twice-weekly auctions. It broke that band the second time on Oct. 5, after it failed to meet mounting dollar demand for the 24th straight auction. Before the new rule was announced yesterday, the naira depreciated by 1.7 percent to 164.15 per dollar, the weakest since at least 1994, when Bloomberg started compiling the data. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by Reference(m): 10:41pm On Oct 07, 2011 |
And who does the stronger naira benefit. Those who never want to make anything for themselves. Thanks Seun. Lets continue importing and seeking cheap dollars. In a while the Greek economy will be like a weekend picnic compared to ours. Lousy move. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by Gbenge77(m): 12:44am On Oct 08, 2011 |
Masterstroke by Cbn. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by manny4life(m): 1:39am On Oct 08, 2011 |
Hmmm, medicine after death, hehe let's see how this plays out, There is no difference in the long run; in fact this will create a shock on the economy, this will create more opportunity for demand of $$$ but hey lets see what happen. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by stevo4life(m): 2:26am On Oct 08, 2011 |
Thanks for the lecture, The solution is simple, diversify the economy, nigeria should not rely only on crude oil, |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by okeyxyz(m): 2:50am On Oct 08, 2011 |
@ ogasir2011, thanx for your analysis, it was concise & u made as simple as possible. but i still don't understand somethings. all the oil exporting companies are foreign investors in nigeria & their capital reserves & current accounts are in foreign banks , in dollars, pounds, euros etc. i don't understand why they still have to bid for forex from the CBN, competing with local demand. can somebody pls explain this to me(in english please  ). in their position, should't they(oil companies) be able to supply forex to the nigerian market? or is this supply rights a monopoly of the CBN? |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by okeyxyz(m): 3:00am On Oct 08, 2011 |
stevo4life: yes, diversify the economy, but govt need to show some common sense & seriousness by protecting\incentifying our local industries until they grow & become strong enough to compete in open market. right now, there are no supports from govt & thus diversification still remains a dream. what do these industries need? govt credit guarantees, electricity, water, transport infrastructure, tax breaks, subsidies. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by Nobody: 3:06am On Oct 08, 2011 |
though i dont know much about this but from what i read,it s a good idea! those against it(talking about longrun abi shortrun) can jump in to their nearest pit toilet! |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by KayDee4: 5:19am On Oct 08, 2011 |
ogasir2011: This is a bit confusing What Oil Companies are you talking about ? The upstream guys or the downstream ones ? I dont quite remember how this works again but I think it goes like this. Upstream companies >> Produce >> export >> receive fx in return Downstream companies (have naira but need dollars to import ) >> go to CBN thru commercial banks (DAS, form M) >> import >> pay the foreign seller in dollars The upstream (exploration and production) guys contribute to dollars in circulation because they receive money in dollars as export proceeds and they sell (to banks i think - I cant remember the process); so the guys that need and bid for dollars at the DAS(Dutch Auction System) are the downstream guys that import and they will still need to source for dollars somehow, someway; so in the end its still going to be from CBN. The commercial banks will still have to go to CBN for dollars (DAS) on behalf of the oil companies that import. So what's the new process going to be? I dont really understand In a case the oil company need to transact with other foreign banks, the commecial need not go to CBN to bid for dollars to consumate their transactions. They money in their account is already dollars so there wire it straight. How will they get the dollars into their accounts ? . I believe the producing companies are different from the importing (trading) companies. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by alldone(m): 11:59am On Oct 08, 2011 |
it is a good move by CBN. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by ebere1712: 12:09pm On Oct 08, 2011 |
Sorry I may be naive in economics, but can someone explain why we sell oil in dollars instead of naira. I think selling oil in naira would boost our currency value. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by Cargoed: 12:38pm On Oct 08, 2011 |
Let me try to explain in plain English  Please this only my opinion ohh, The CBN needs to fight Inflation as its first priority. Not next year this month or in business terms by the next Auction @Seun they fight it month by month. Govt policy should take care of the long term. CBN and Govt are not exactly the same. Now to fight inflation they have to identify who their enemies are: 1) Fuel Importer (Downstream Oil Sector) 2) The Black Market man on your street corner 3) The Thailand Rice Importer (General Importers) To control inflation you have to INCREASE Naira demand from outside Nigeria. Okay lets deal with the first enemy, enemy No1 The downstream importer has an upstream exporter same company so why don't they partner together for their forex demand why pass the burden to the CBN in (business terms its called Arbitrage) Now this will start to get the upstream side to think ohh! why dont we just build a refinery so these downstream stop worrying us for forex. Also the man who does not have an upstream division is trapped. which is what the CBN wants. Ban all commercial banks representing Fuel importers for forex at CBN. I will also mention that these banks will lose transaction fees in the short term. Enemy No 2: The blackMarket guy: Now who does he represent. Well to a degree he tries to fix the exchange rate. without caring about the CBN so he is enemy no2. Now the CBN can concentrate on the Thailand Rice importer which will cause the rate by the blackmarket vs CBN to narrow and not diverge hence putting the blackmarket man out of business to some extent. Now we can go to our banks to ask for dollar, something like that. or use our Visa/MasterCard oversee without beign scared. Enemy No3: The General Importer AKA Thailand rice importer: This is the guy who has the inflation in his pocket and CBN wants it back. So what do they do help reduce the cost of forex in the first instance but monitor where he is gettiing his forex from and try to help him get it at a cheaper rate lets call it narrow rate. Then his price can stabilize and so inflation. Also use form M to know what and where he is buying. @KayDEE they will be trapped they have been banned if they increase price, competition form local refinary will checkmate them. @ogasir its not as simple as that ohh, cashless economy does not directly do anything to inflation. Unless CBN will tell banks to only dispense N20 notes at the ATM and not N1000 note so you can still pay N20 for your bus fair and not the conductor saying no change so pay N50 hence inflation 150%  Look at it this way when you check your account balance how do you feel? Thats what happens to the CBN anytime they check the rate of inflation. "its their blood". If inflation is to high we can't even think of manufacturing. Why? we cant burrow to buy machine e.t.c hence no forex hence more headache for CBN and more thailand rice buyers and more blackmarket guys Okay thats my own 25kobo. If you want more analysis let me know, |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by vedaxcool(m): 12:47pm On Oct 08, 2011 |
ebere1712: it is simple without dollars (foreign exchange) we cannot import , that is we need foreign exchange or dollars in this case and more importantly there is hardly demand for naira in the foreign markets, hence it does not make a good medium for exchange of goods. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by okeyxyz(m): 2:57pm On Oct 08, 2011 |
ok, i get it now, i thought it was the upstream oil coys we were talking abt. so, talking about the downstream oil companies and their demand for fx, how does the CBN hope this new policy is going to work? given that they only import to sell in nigeria & have nothing to export(infact nigeria has nothing but commodities with no added\premium value). this seems impossible really. can somebody explain how this can work? do the importer oil companies have alternative source of fx? should't the CBN rather liberalize the forex market too? that way anybody with fx reserves can sell to nigerians. certainly the upstream oils companies can fill this space(i don't know if they r already doing so). but overall, naira has not market value because we don't have anything manufactured to sell, HoHaa!! |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by Seun(m): 3:17pm On Oct 08, 2011 |
This change of policy has no real effect on anything. I suspect it was done out of desperation, not strategy. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by daroz(m): 9:59pm On Oct 08, 2011 |
Cargoed: Word |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by MAURI: 6:22pm On Oct 09, 2011 |
OkeyXYZ, The bolded part of your post is a very good observation. It is public secret that the demand for forex in Nigeria exceeds it’s supply. Most of the reasons for this is obvious and we’ll save that for another discussion. The prevailing consequences to the Naira is that the Naira is constantly under pressure against major currencies. The CBN is often up-tight in conceding to the fact that they hardly can do anything about this, unless the core issues of dependency on fx is tackled i.e. diversify, enhance our manufacturing industry, crate enabling environment to encourage and enhance FDI, make sure we only import things that are really necessary and for which there are no alternatives locally etc. From an economical perspective, it is obvious that the Naira is over-valued against major currencies, that explains the reason why the CBN is not able to liberalize the forex market, in the event that they do this, the Naira will drop to it’s parity. The absence of liberalization, is also responsible for the thriving black market and all mallams at our airport in places as Yaba, Bristo hotel, Federal Palace Hotel etc. who are taking advantage of the arbitrage (A forex strategy in which a currency trader takes advantage of different spreads offered by brokers for a particular currency pair by making trades. Different spreads for a currency pair imply disparities between the bid and ask prices. Currency arbitrage involves buying and selling currency pairs from different brokers to take advantage of this disparity) that exist in the Naira. Only a few days ago, it was published in one of the dailies that the CBN may decide to allow the Naira to fall against the USD, of course it’s a losing battle so long the core issues are not tackled. To further go into the advantages of liberalization of the forex market, if the CBN in conjunction with major banks will put in place an easy and workable process of exchange; This will lead to more transparency, take away the manipulation of the aboki’, people will feel more at ease to approach the banks to SELL and buy fx from them. The situation as it is now, is that people like me are left to the mercy of abokis because they offer me higher value for my fx while this should be part of the services to be offered by bonafide banks. In developed economies, there are bonafide bereau de changes everywhere where one can easily walk in to buy and sell fx (with limits) |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by MAURI: 9:33pm On Oct 09, 2011 |
should't the CBN rather liberalize the forex market too? that way anybody with fx reserves can sell to nigerians |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by okeyxyz(m): 10:58pm On Oct 09, 2011 |
@MAURI, thx man. your explanation was great help. i can see why the nigerian fx market cannot be liberalized, it would definitely spell disaster for us, as we have no manufacturing\value-adding economy to anchor our naira on. |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by UncleJJ(m): 12:21pm On Oct 10, 2011 |
[size=8pt][size=8pt][size=8pt]The Naira Is Going UP[/size][/size][/size] |
| Re: Ban On Use Of CBN's Dollars By Oil Companies by kodewrita(m): 2:24pm On Dec 02, 2011 |
Seems shifting the target band has helped to stabilize the currency. has it? |
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