Exchange rates: CBN shuts official forex windows

Exchange rates: CBN shuts official forex windows

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The Central Bank of Nigeria (CBN), Wednesday, announced the closure
of its foreign exchange (forex) windows- the Retail Dutch Auction (RDAS) and the Wholesale Dutch Auction Sale (WDAS), thereby
shutting out the Bureau de Change operators from forex auction
trading.

Essentially, the action has conferred on the interbank market activities
the power to determine the exchange rate value of the country’s legal
tender, which could end the official exchange rate band pegged at
N168 to N176 during the last devaluation of the currency.

The move, according to CBN, was aimed at averting the emergence of
a multiple exchange rate regime and preserve the country’s forex
reserves, which has plummeted in recent times.

According to CBN, the float exchange rate regime, which it adopted
following the liberalisation of the forex market, has been majorly
successful in ensuring stability in line with its mandate.

In a statement signed by the bank’s Director of Corporate
Communications Department, Ibrahim Mu’azu, henceforth, all demand
for forex should be channelled to the Interbank Foreign Exchange
Market.

The apex bank however, noted that with the sharp fall in the global oil
prices and the resultant decline in the country’s forex earnings, it
observed a widening of margins between rates in the Interbank market
and the official window- RDAS.

This, it added, engendered undesirable practices, including round-
tripping, speculative demand, rent-seeking, spurious demand and
inefficient use of the scarce forex resources by the economic agents.

“This has continued to put pressure on the nation’s foreign exchange
reserves, with no visible economic benefits to the productive sector of
the economy and the general public. In view of the foregoing, it has
become imperative that appropriate actions be taken to avert the
emergence of multiple exchange rate regime,” the statement added.

The apex bank however, assured all authorised dealers and the public
that it will continue to intervene in the Interbank Foreign Exchange
Market to meet genuine and legitimate demands.

The foreign exchange volatility against the naira also led to the
emergence of the RDAS, replacing the WDAS, as a measure against
alleged frivolous demand for forex, notably among authorised dealers.
Recently, CBN unveiled measures to contain the demand-induced
pressure on reserves by streamlining items that would be funded at its
official window and a verification procedure for forex demand before it
could be granted.

A renowned economist and Managing Director of Financial Derivatives
Limited, Bismarck Rewane, described the development as
commendable, as the measure would now make naira to be
convertible and acceptable across the borders of the country.

He pointed out that there will be more naira available for governments
at various levels, as well as the availability of the dollar, which will
allow the naira to compete favourable and consequently, find its
appropriate value.

“The situation is not bad at all. We are only having a naira adjustment.
We have moved from control to auction and now tending towards
convertibility. Whatever the naira is priced now is the real value of the
currency. There is nothing again like exchange rate band. The N168
official exchange rate is now gone and I am sure that the speculations
will be over now,” he said.