There are indications that the Nigerian naira which appreciated in every segment of the foreign exchange (forex) market last week, will stabilize on the parallel market as international money transfer agencies commences selling of dollars to Bureau De Change operators in line with the Central Bank of Nigeria directive.
This is even as China’s currency, known as either the renminbi or the yuan, has become the newest member of the International Monetary Fund’s (IMF’s) basket of reserve currencies.
The IMF announced that the move to include China’s currency in its reserves was effective October 1 and is a recognition and reinforcement of “China’s continuing reform progress.”
Meanwhile, the naira was quoted at N470 to the dollar on the black market on Friday, compared with N473 on Thursday, just as it closed at N306.75 per dollar, compared with N306.71 to the dollar on Thursday at the interbank market.
“We have started receiving dollar supply from Travelex and we expect this to gradually impact positively on the naira exchange rate going forward,” the President, Association of Bureau De Change Operators of Nigeria, Aminu Gwadabe, was quoted as having told Reuters.
“This week, we anticipate stability in the foreign exchange market on improved forex supply,” dealers at Cowry Assets Management Limited said in a note.
The Local currency appreciated against the greenback at the interbank market, Brueau De
Change and parallel (‘black’) market segments, by 0.50 per cent, 1.48 per cent and 1.46 per cent to N322.12/US$, N465/US$ and N473/US$ respectively.
The appreciation of the domestic currency at the alternative market segments came on the back
of boost in Dollar supply from US$30 million to US$45million from Travelex, an International Money Transfer Operator (IMTO); supplying US$15,000 to each of the 3,000 registered Bureaux De Change operator, on Friday.
Dealers disclosed that due to improved foreign exchange supply, every dated forwards contract exchange rate including 1month, 3months, 6months and 12months forward contracts steadied week-on-week at N328.82/USD, N339.45/USD, N355.41/USD; and N388.20/USD respectively.
Similarly, IMF Director Siddharth Tiwari said in a statement that the decision to add Yuan to reserves “is an important milestone in the integration of the Chinese economy into the global financial system,” adding that China’s “expanding role in global trade” made the move possible.
Experts say the IMF’s move is likely to displace demand for other currencies in the IMF’s reserve currency basket, known as the Special Drawing Rights (SDR). Those other currencies include the U.S. dollar, the euro, the Japanese yen and the British pound.
The inclusion of the Chinese renminbi according to them will displace the weight of the other currencies.
The U.S. dollar will now be 41.7per cent of the basket (versus 41.9% previously) while the euro will fall from 37.4per cent to 30.9per cent; the yen will fall from 9.4per cent to 8.3per cent, and the pound will fall from 11.3per cent to 8.1per cent.
The People’s Bank of China heralded the move as a “milestone” in the country’s financial progress and said it is “an affirmation of the success of China’s economic development and results of the reform and opening up of the financial sector.”
Some analysts have argued China’s relaxed banking regulations have created the largest debt bubble in the world and will result in greater economic instability in China and globally. It remains to be seen how the IMF’s move will offset that instability.