The Central Bank of Nigeria (CBN) must fund the Bureau De Change (BDC) segment of the foreign exchange.
Former CBN Governor and former Emir of Kano Muhammad Sanusi II said this action will bridge the gaps between official and parallel market rates of the naira.
The apex bank in March suspended dollar sales to BDCs. But the policy has not affected dollar transactions in the Investors & Exporters (I&E) forex window.
Sanusi II, who spoke in a live webinar organised by AZA, a cross-border payments platforms and forex trading firm, on the theme: United States of Naira: What Price for Unification?, said there has been huge gaps between the official rate, the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) and the BDC rates since 2016.
He said: “I think what the bank is trying to do is bridge that gap and I think moves have been made in general in July that has brought the CBN rate and the NAFEX rates closer. But, the BDC rates remain an outlier. It is a small percentage of the market, but it does have an impact on speculation, which is why it is important to fund that market.”
According to him, the huge gap between NAFEX and BDC is a reflection of funding being taken out of the market because of a shortage of foreign exchange.
“And once the Central Bank has enough money and funds that market, it will probably converge. So, I would not be interested in moving the rates towards N470, for example, but I would like to see a convergence of CBN and NAFEX, which will take care of over 90 per cent of the transactions in the market and there is some small funding for BDC rate to bring it back to that level,” he said.
According to him, the CBN had always been guided in the definition of unification by the International Monetary Fund (IMF) position, which is that a multiple currency environment is one where the difference between the rates exceeds five per cent. He said the apex bank had always tried to keep the gap between the official rate, the Automated Teller Machine (ATM) bank rate and even BDC rates to within that range, usually about three per cent.
The former CBN boss said the apex bank is already moving towards unified exchange rate regime.
“It is what the IMF and the World Bank have asked for. It makes for positive transparency; it makes for clarity of direction; it also reduces the speculative demand for naira. For me, this is the Central Bank finally saying, basically, we will do what the market has been asking for,” he added.
West Africa Banks Analyst at Tellimer, Nkemdilim Nwadialor, said Nigeria seemed to be facing liquidity gap in the forex market and that has undeniably contributed to how far all the markets are shrinking, as reported by Solabace.
