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Forex Scarcity Persists As CBN Resumes Intervention



There are indications that banks are ignoring the Central Bank of Nigeria, CBN, directive that they should grant their customers unfettered withdrawal of foreign currencies from domiciliary accounts.

Meanwhile, Nigeria’s foreign exchange market has recorded a drastic change following the market reforms introduced by the CBN, previous week.

Findings show that the banks are still restricting the amount of foreign currency that customers can withdraw from their accounts saying the currencies are still scarce.

Dealers and the customers lamented that the situation has impeded supply of foreign currency to the market.

But the drastic change in both structure and operations of the foreign exchange market, has resulted in exchange rate convergence by default as the US dollar traded within narrow band across the three segments of the market, namely, the Investors and Exporters (I&E) window, the Bureau De Changes (BDCs) and the black market.

However, for the first time, the exchange rate in the official market (I&E) surpassed what obtained in the black market.

Meanwhile, dealers across all the segments are facing acute scarcity of the US dollars while CBN resumed supply of the foreign currency last week, though at a very low volume.

Findings by Financial Vanguard show that Naira last week depreciated further to N770.17 per dollar in the I&E window, with currency dealers projecting further deterioration of the dollar scarcity, a situation which may propel further depreciation of the local currency this week.

According to data from FMDQ, the I&E window exchange rate closed at N770.17 per dollar on Friday. This represents 16.2 per cent week-on-week, WoW, depreciation of the Naira when compared with the closing rate of N663.04 per dollar the previous week.

The Naira also depreciated in the parallel market, where the dollar traded within the range of N765 and N770 per dollar, at the close of business, up from N759 per dollar the previous week.

The Naira has been on the downward trend in both the official market and parallel market, since the Central Bank of Nigeria, CBN announced, “Operational Changes to the Foreign Exchange Market,” including elimination of multiple exchange rates/segments and re-introduction of willing seller, willing buyer model in the I&E window.

Since the changes were announced the previous week, the Naira has depreciated by 63 per cent in the I&E window, from N471.67 per dollar on Tuesday June 13th.

During the same period, the Naira also depreciated by 20 per cent in the parallel market from N755 per dollar.

Dollar scarcity

Financial Vanguard findings from currency dealers showed that the depreciation is driven by acute dollar scarcity in both I&E and the parallel market.

A banker and forex market analyst who spoke on condition of anonymity said, “Though the CBN intervened in the I&E window on Thursday, the market is still very short, in terms of supply. The volume of sales by the CBN was not much. The highest volume sold per buyer was $5 million dollars. Some others got $2.5 million while others got between $250,000 and $1 million.

“They, however, sold only to people that bided at an exchange rate above $761 per dollar.

“After the CBN’s sales, some international organisations also sold but the volume was small compared to the demand, especially given the backlog of matured obligations. I will say the market is still evolving and going through a price discovery process. The volatility will continue with the Naira further depreciating, depending on dollar supply coming into the I&E window.

“The true exchange rate will only emerge when all the backlog of dollar demand has been satisfied.”

Operators react

Bureaux De Change, BDC, operators and parallel market operators who spoke to Financial Vanguard lamented the dollar scarcity in the market, noting that banks are yet to comply with the directive of the CBN that they should allow customers have unfettered access to funds in their domiciliary accounts.

Mallam Ahmed Yunusa, a black market trader in Lagos, said: “The market has been very busy since last week after the CBN eased its restrictions on forex trading in banks.

“A dollar was sold for N770 today (last Friday) because I bought a dollar for N765 making just N5 profit. However, over the week, the dollar has been traded at N745 to N770.

“The reason for this is because most of our customers who visited the banks complained the demand for dollars is higher than the supply and that the banks don’t have enough dollars to go round hence the rise in the price for the willing buyers.

“Most traders at the parallel market decided to sell a bit less or higher within the price range of banks to keep our customers as the competition becomes tougher.

“I see a continuous rise in the volume of demand for the dollar as we approach the end of the year and an appreciation of the Naira to N500 or N600 per dollar in the near term if dollar supply increases.”

On his part, Mallam Umoru Mohammed, another black market trader in Lagos, said: “The dollar has been trading since last week from N740 to N770. Today the dollar was traded at N750.

“Here in Ikorodu, businesses have been dull as not many sold dollars to us hence I was not able to get supply of dollars due to the higher demand of dollars than supply.

“I see the Naira depreciating to N800 per dollar due to the inability of traders to meet the demands of buyers as we approach the remaining half of the year but if there is more forex inflows the reverse will be the case.”

Similarly, Garuba Hassan, a parallel market operator also in Lagos, said: “Today (last Friday) we are buying at N750 per dollar, but yesterday the rate was between N760 and N770 per dollar. If you go to the banks, they will tell you no dollars. You will have to visit about three banks before you can get the dollars, and this is affecting the market and the rate.”

Speaking on condition of anonymity, a Bureaux De Change, BDC, operator, and executive member of Association of Bureaux De Change Operators of Nigeria, ABCON, said: “There is nothing like BDC exchange rate because the CBN is not selling dollars to BDCs. We all compete with the parallel market operators for dollars and as such we have to ensure our rates match theirs.

“The situation in the market now is that demand is high but dollars are still scarce because there is no supply.

“People that want to withdraw dollars from their domiciliary account are not able to do so. The banks keep telling them there are no dollars.

“But I believe the Naira will appreciate in the coming weeks. The sharp depreciation of the Naira in the I&E window, I believe, is to encourage investors and Nigerians in Diaspora to bring in their dollars.

“Once this happens, the exchange rate in both I&E and the parallel market will gradually go down.”


Job Losses, Factory Closures Loom As Unsold Goods Pile Up — MAN



AGAINST the backdrop of sustained pressure in the foreign exchange market and high cost of production, the Manufacturers Association of Nigeria, MAN has indicated that inventory of unsold goods is escalating to levels now threatening the existence of companies operating in the production sector of the economy with attendant job losses.

Findings show that as of the weekend the foreign exchange market had recorded over 254 per cent plunge in the value of the naira since flotation of the currency by the Central Bank of Nigeria (CBN) in June 2023.

Recall that the naira traded for N471 per dollar in the official I&E market on June 13, 2023 before the floatation of the currency, but exchanged for N1,665.50 to a dollar as at February 23, 2024 on the Nigerian Foreign Exchange Market (NAFEM), indicating a depreciation of more than 253.6 per cent over the eight-month period. The forex crisis is also stoking inflation, and coupled with high energy costs, purchasing power has continued plummet, stifling demand for goods.

Speaking on the impact of this development on the manufacturing sector, Director General, MAN, Segun Ajayi-Kadir, said: “There are reports that across the board, many warehouses and plants of many manufacturing firms are stockpiled with unsold goods manufactured last year. “The development is as a result of the devastating effects of the exchange rate crisis, inflation, fake and sub-standard goods, smuggling and other macro-economics challenges.”

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CBN Lifts Ban On BDCs, Introduces New Operational Mechanism



In a major development aimed at financial stability and strengthening the naira, the Central Bank of Nigeria (CBN) plans to resume its weekly intervention in the country’s foreign exchange (FX) market through the Bureau de Change (BDC) operators.

In 2021, the central bank, in a bid to achieve its mandate of safeguarding the value of the local currency, ensuring financial system stability, and shoring up external reserves, announced the immediate discontinuance of foreign currency sales to Bureau de Change (BDC) operators in the country.

However, the resumed intervention, which would reportedly commence today for funding as well as Tuesday for collection, will see the apex bank inject FX into the subsector in a bid to rescue the naira from further depreciation against major currencies, particularly the US Dollar. The collection will be at designated CBN branches in Lagos, Abuja, Kano, and Awka, while details of the naira accounts to be credited for funding bidding will also be made available today.

CBN is also expected to publish the list of eligible BDCs to benefit from its funding using certain compliance criteria.National Executive Council of Association of Bureau De Change Operators of Nigeria (ABCON) hinted on the latest developments through a memo to its members over the weekend.

The association also warned members that it will no longer be business as usual under the new supervisory regime of the central bank, as any infringement or infraction would result in outright revocation of license and prosecution.

ABCON said through the association’s various engagements with the central bank, in conjunction with ABCON’s strategic partners, CBN had agreed to its request, under the bank’s supervision, to inject liquidity into the market through a weekly intervention beginning today.

CBN assured ABCON that the new circular on the Revised Regulatory and Supervisory Guidelines to BDCs, which was introduced over the weekend, was only a draft exposure that required the association’s inputs before the release of the final guidelines by the apex bank.

To that effect, the letters of the guidelines were not cast in stone, the association’s leadership told its members, who had been worried over the sweeping reforms in the document, which, among other things, prescribed N2 billion and N500 million minimum capital for national and state BDCs, respectively.

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