In the last four months, the Central Bank of Nigeria (CBN) has funneled over $5bn into the interbank, Bureaux de Change, wholesale spot and forwards auction segments of the foreign exchange market.
This dollar intervention policy, which the apex bank introduced on February 20, this year, to alleviate the suffering of Nigerians who desperately needed the dollar for foreign transactions, has correspondingly impacted positively on the market, narrowing the hitherto irritating gap between official and black market rates.
The CBN’s wholesale interventions in the interbank forex market at which it provided a total sum of $370,810,810.79 to 23 banks to meet the visible and invisible requests of customers were primarily to ease the difficulties encountered by Nigerians in obtaining funds for foreign exchange transactions.
In a circular to all authorised dealers, the apex bank said the sale would be in the form of a Special Wholesale Intervention Forward not exceeding 60 days and authorised dealers were to send their requests for sums not exceeding 7.5 per cent of the amount on offer.
The CBN warned banks against allocating funds for customers’ Letters of Credit (LCs) that have already benefited from past SMIS that are yet to mature.
The intervention, which attracted cautious optimism from foreign exchange market operators and other Nigerians who had been subjected to different ordeals in the hands of unscrupulous banks and mindlessly avaricious Bureaux de Change operators, was, indeed, a huge relief to all and sundry in view of its immediate impact on the socio-economic life of citizens.
It is heart-warming that both the official and parallel market rates of foreign exchange are at par, making resort to the black market for the purchase of the dollar unnecessary, and its sale by the operators at cut-throat price unviable.
At some point, whereas the official foreign exchange rate was N350 per dollar, at the parallel market, the US dollar, when it was even available, went as high as N560. Cost profiles of imported goods and services skyrocketed, contractors were stretched to the limit as they struggled to meet forward contracts, BTA/PTA, and medical fees demand, and parents could hardly source foreign exchange to pay school fees of their wards overseas.
Though the CBN governor, Godwin Emefiele, repeatedly warned against illicit hoarding of the foreign exchange, emphasising the economic implications of unbalanced and irrational forex movement, but as demand responded to supply, the situation remained unabated until the CBN eventually came up with the wholesale intervention.
Even then, many prominent financial watchers and economists had doubted the sustainability of the wholesale intervention. For instance, JPMorgan Chase & Co. and Renaissance Capital were convinced that the continued rally of the naira sequel to foreign-exchange forwards and looser capital controls will be dependent on the CBN sustaining the sell-down of its foreign reserves.
The CBN kept the pecker up by injecting a second round of intervention including the $190m into the interbank market. At the trading, the bank offered $100m as wholesale interventions and allocated $50m to the Small and Medium Enterprises (SMEs) forex window. Customers requiring forex for Business/Personal Travel Allowances, tuition and medical fees, among others, got $40m.
Going by the reasonable ease with which those that need the foreign exchange are able to obtain it at the airports, banks and other locations, it is obvious that the intervention has met the desired expectations.
Perhaps, the impact of the intervention is felt more at the parallel market that had hitherto been the cruel and miserly dispenser of the dollar than elsewhere. Understandably, operators of the parallel market are now at the receiving end as stash-up foreign exchange is either poorly in demand or offered at unattractive prices.
Bureau de Change operators across the country have lamented negligible patronage from the public, claiming that the development has caused them to lose a lot of money as they did not envisage a quick downfall of the dollar which they claimed had been purchased at an expensive rate in the hope of cashing in on the situation for quick returns.
“I have not been able to sell the dollars that I bought at N420 but which now sells for N395. People are not buying; they are selling and I believe that the naira will go up more this week and next week,” an aggrieved Bureaux de Change operator lamented in Abuja.
We hope the CBN will continue to wear its thinking cap and sustain the gains so far made to stabilise the forex market operation in Nigeria. It should evolve other functional financial policies that will quicken Nigeria’s exit from economic recession.
