Naira Jumps N3 At Parallel Market Amid Criticism Of CBN Forex Policy
Barely twenty-four hours after the World Bank blamed the Central Bank of Nigeria (CBN) for the decline of the nation’s currency, the Naira jumped up N3.00 or 0.59 per cent against the United States Dollars on Wednesday at the parallel market.
Data obtained on AbokiFX.com, a website that collates parallel market rates in Lagos showed, Naira closed at N502.00 per $1 at the black market, a N 3.00 or 0.59 percent rise from N505.00 it traded on Tuesday, June 15th.The naira rate at the Bureau De Change operators (BDC) stands at 495/500 per $1.
However, at the official Investors and Exporters (I&E) window on Wednesday, the naira declined against the U.S. dollar, falling by N0.98 or 0.23 percent.
Figures from the FMDQ Security Exchange where forex is officially traded showed that the Naira closed at N412.00 per $1 at the Nafex window. The fall of the nation’s currency represents a N0.98 or 0.23 per cent depreciation from N411.02 to a US Dollar.
The topsy-turvy of the Naira is coming amidst the criticism by the World Bank against the CBN over its handling of forex in the country.
The apex bank which operates a managed float, periodically in a bid to supports the currency using the reserves, came under fire from the Washington based lender.
The IBRD blamed the CBN’s management of the foreign exchange regime as the reason for the FX crisis currently being experienced in the country.
The World Bank in its bi-annual Nigerian Development Update, a report published twice yearly stated that the regulator’s management of the exchange rate decreased supply in the market which affected investor confidence and eventually culminating in investors choosing the black market over the official market.
The global body said, “The way the exchange rate was managed limited access to FX and thus adversely affected investor confidence and investment appetite.
“Significant spreads between the official, the IEFX, and the parallel exchange rate persisted throughout 2020 and as of April 2021, the spread between the official and the IEFX rate was estimated at 8% and between the IEFX and the parallel rate, reached 18% (the spread between the official and the parallel rate was 27%),” the World Bank added.
“In May 2021, the CBN formally took concrete steps towards rates unification between the official and IEFX rates. However, the IEFX rate continues to be managed and is not fully reflective of market forces. Furthermore, there remains a 20 percent premium between this unified rate and the parallel market rate. The two-month naira-for-dollars scheme introduced by the CBN in March 2021 to serve as an incentive for increased remittance inflows through formal channels was extended indefinitely in May and was preceded by regulatory directives in December 2020—that mandated all licensed operators to pay remittances in dollars. While this may indeed encourage the use of the formal channels, it is not clear that incentive payments will increase remittances to the country.
“While the CBN has taken steps towards operationalizing unification of exchange rates, greater flexibility will be necessary to support the recovery. Until oil companies are allowed to sell FX receipts to IEFX bank participants, CBN would still have an important role to play as supplier of FX. In this scenario, participating banks in the FX market will start to play an expanded role that goes beyond just executing buy/sell orders of its clients to start acting as market makers, meaning that they start to quote two-way prices buying and selling on its own behalf and carrying a stock of FX.
The report pointed that with increased flexibility, the CBN could start intervening only to smooth large fluctuations and work toward ensuring a single, market-driven rate. Keeping market stakeholders fully informed of such efforts would help attract both domestic and foreign investment. The right mix of exchange-rate flexibility and expanded supply (e.g., through banks and FX agents) would enable the FX market to efficiently allocate resources, which would allow the CBN to focus its interventions on smoothing large and disruptive FX fluctuations,” World Bank added.
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