Nigeria’s FX convergence journey hits brickwall

Nigeria’s FX convergence journey hits brickwall

Nigeria’s FX market is very much on its way to price discovery as investigations reveal that the Naira is currently trading at an average rate of N792.50 at the parallel market, also known as the black market.

This is coming after the official I&E window recorded a closing exchange rate of N762.63 per US dollar compared to the N792.50/$1 average sold at the parallel market on Thursday.

 Daily Sun investigations revealed that parallel market traders in Ajah, Marina and Festac quoted the rate at N790 and N795. The current rate is 0.94 per cent (N7.5) higher than N785 traded on Wednesday, leading to a further depreciation of the currency against the dollar.

The development was attributed to increased demand for dollars by importers and individuals who want to travel for business, school, and other purposes. Aliyu Ibrahim, an FX dealer said, “The demand of the dollar is high and that is because importers especially people who want to continue their study outside the continent are demanding dollar.

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However, analysts who spoke to Daily Sun, stated that the FX convergence is causing concern since it suggests that demand for forex is on the parallel market, which is deemed lower in size to the investor and exporter window while adding that the cause for the increasing difference could possibly be related to the parallel market’s ability to meet demand.

Most traders appear to be watching activity in the investor and exporter window, which is still seeking to re-establish itself as the official destination for currency trading.

Meanwhile, the FMDQ has revised the computation methodologies of its foreign exchange (FX) rate-fixing products. The move is likely to impact how the exchange rate is determined going forward. According to a market notice issued by FMDQ Exchange, the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) and the Investors’ and Exporters,’ (I&E) FX Window Spot Rates will now be calculated using actual FX market transaction data, rather than indicative quotes from market participants.

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 The indicative quotation approach is vulnerable to manipulation since it may not fully reflect the actual price at which a trade was completed. Speaking to Daily Sun,  former Chief economist at Zenith Bank, Marcel Okeke, stated that the Naira was losing its basic role as a store of value.

Explaining how the Naira is losing its role as a store of value, Okeke said that unwittingly, the dollarisation of the Nigerian economy is being fast-tracked as economic agents would now prefer to save (or denominate) their assets in dollars for more stability in the value of their savings and assets.

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“In view of all these, even exporters of non-oil items will be discouraged from repatriating their earnings going forward. This will lead to further scarcity of FX and collapse of the Naira in the face of sustained excess demand,” he said.

 The 59th President, Institute of Chartered Accountants of Nigeria (ICAN) Dr Innocent Okwuosa, however disagreed with Okeke’s view, stating that the action of the new administration will lead to short term gains that will yield long term gains.

 Okwuosa said that the timely appointment of a new Central Bank of Nigeria (CBN) Governor will provide the much needed credible long term direction for the policy.

“This will provide certainty and stability and boost investors’ confidence to inflow capital in the country”, he said.


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