CBN banned banks from selling dollars to Bureaux de Change (BDCs)

The fortunes of the national currency, the Naira took a sharp turn downwards yesterday as it fell by 270 kobo, with the parallel market exchange rate rising to N180 per dollar from N177.3 on Monday.

Since the beginning of the month, the Naira has fallen against the US dollar by N7.9 at the interbank market, and N10 at the parallel market.

Interbank and parallel market operators attributed this sharp depreciation to restrictions introduced by the CBN to curb foreign exchange demand at the official market. Falling crude oil prices, coupled with depleting Excess Crude Account has triggered palpable anxiety about the value of the Naira. Stocks have also been hit as a result.
On October 28, in addition to a 10-kobo margin limit imposed on intervention dollars, the CBN banned banks from selling dollars to Bureaux de Change (BDCs). Furthermore, on November 6th, the CBN excluded importation of six items from official foreign exchange, saying it would no longer sell official forex for their importation. The items included electronics, finished products, information technology, generators, telecommunication equipment and invisible transactions. According to the apex bank, the items would henceforth be funded from the interbank foreign exchange market only.

Thus, the apex bank unwittingly shifted forex demand for importation of the six items from the official market to the interbank market.

The two restrictions combined triggered sharp increase in demand for forex in the interbank market, and scarcity of dollars in the parallel market. Though the CBN was selling intervention dollars to banks, banks could trade with the dollars because of the 10 kobo limit. This, according to a foreign exchange dealer created a scarcity situation in interbank and the subsequent steady depreciation of the naira.

Why CBN imposed restrictions

The restrictions were imposed to stem the persistent decline in the nation’s external reserves following continued decline in price of crude oil. Within three months, the price of crude oil fell from $100 per barrel to $78 per barrel.

The sharp decline in crude oil prices occasioned apprehension among foreign investors, who believe that with decline in revenue from crude oil, and the CBN using the reserves to defend the Naira, it would not be long before the Naira suffered sharp depreciation. Hence they moved their money out of the country by divesting from the nation’s stock market and FGN bonds.

Scarcity of dollars behind Naira’s fall
Acting President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe said the depreciation was due to scarcity of dollars in the market. He said most of the banks are not selling dollars to BDCs, thus worsening scarcity in the market.

This was corroborated by Managing Director/Chief Executive, HJ Trust BDC, Mr. Harrison Owoh. He said that parallel market rate rose from N177.3 to N180 per dollar because there is no dollar in the market. He said the banks are not selling to BDCs, and the two banks that sold at N179 per dollar and N178.4 per dollar respectively. He added that depreciation of the Naira is not limited to the dollar, adding that it has been depreciating against the Euro and Pound Sterling in recent times too. He said the exchange rate of the Euro has risen to N220 from N117 last week. Owoh said that the market is overwhelmed with uncertainty about the exchange rate.

“In fact, we don’t know what the rate of the dollar is now”, he said.

Source: Vanguard