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How CBN’s Sale Of $2.03bn Crashed The Dollar In 5 Weeks By Bukola Idowu, Lagos

By Bukola Idowu, Lagos

Over the past five weeks, the Central Bank of Nigeria (CBN) through its regular interventions at the foreign exchange market sold over $2 billion dollars to meet wholesale and invisible demand, causing the value of the naira to soar at the parallel market.
Presently, the value of the naira at the black market and the Bureau de Change (BDC) rate have converged and is nearing the rate at which banks sell to their customers.
The value of the naira as at Friday afternoon had appreciated to N380 to the dollar, while the BDC and bank-selling rates stand at N375 and N385 to the dollar respectively.
In February, the CBN commenced intense flooding of the forex market with dollars after the naira dropped in value to around N550 to the greenback.
In all, it had sold $410 million for invisibles such as school fees, medical fees, Basic Travel Allowance and Personal Travel Allowance between February 21 and March 24, 2017.
Also, the apex bank had sold $1.623 billion to banks in wholesale forward contracts during the five-week period.
In February, the apex bank had sold $671 million in wholesale forwards and invisibles within two weeks and pumped $1.362 billion into the market in March to spur liquidity in the market.
This is aside the weekly allocation that BDCs get from the International Money Transfer operators. More than 2000 BDCs access forex from the IMTO window on a weekly basis.
The value of the naira which had been stable at around N400 at the parallel market in the beginning of the year, spiraled downwards as demand outweighed supply of the United States currency, spurring the government to call on the CBN to arrest the situation.
Consequently, the apex bank began an aggressive supply of foreign exchange in the market, relaxing its forex rules to allow banks sell forex to customers directly.
In February, the CBN had directed that banks should ensure all applications for BTA and PTA are processed within 24 hours, while medical and tuitions be concluded within 48 hours of such applications.
Asking banks to put up electronic display boards in all their branches, showing the rates of all traded currencies, the CBN  also directed them to open foreign exchange outlets in all leadership locations, warning that any breach of this directive would be visited with severe sanctions.
With these new directives, customers who had previously found it difficult and time consuming to source foreign exchange from banks now have easier access, even as the patronage of black marketers dropped.
A clergy in Lagos said the CBN policy had been a life saver as he was in dire need of forex to pay the school fees of his son who is studying in Denmark in February.
“Everyone knows that things are hard and I was worried that I will have to buy dollar at N550 to be able to pay my son’s school fees, but someone told me that I can actually go inside the bank to buy dollar at less than N400. That was what I did. Although the process was harder than if I bought the dollar by the roadside but it is way cheaper”, he narrated.
This reflects the majority of genuine dollar demand at the black market, leaving mostly speculators to play in the unregulated market.
According to the CBN governor, Godwin Emefiele, and the president of the Association of Bureau de Change Operators of Nigeria (ABCON), Aminu Gwadabe, the decline in the price of the naira at the parallel market was due to the activities of speculators who had hoped the naira would hit N700 to the dollar.
Emefiele, while speaking in Lagos some weeks back, said the only logical explanation to the high rates in the parallel market was that “a lot of illegal and criminal activities are being carried out there”.
He continued: We have seen the results of independent estimates of our exchange rate and we have also conducted in-house analyses of the appropriate rate. None of these results are anywhere near the rates in the parallel market.
“Even a simple Purchasing Power Parity analysis will confirm that the Naira is not as weak as the rate in the parallel market is suggesting. Even if one were to allow for risk pricing and other uncertainties, it does appear that there is no basis in our economic fundamentals to support the prevailing exchange rate at the parallel market”.
The CBN chief had promised that the speculators who were driving the devaluation of the naira at the black market would get burnt soon. The value of the naira commenced a speedy appreciation in March when the CBN consistently pumped forex into the market, twice a week and sometimes three times to the extent that banks were seeking customers to buy up forex from them.
On Monday, Gwadabe had assured that the value of the naira which was at N446 would appreciate to N415 before the end of the week. By Thursday, the naira had crossed to N385 to the dollar and N380 by Friday evening.

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