IN a flurry of measures which analysts regard as steps to stabilise foreign exchange market, the Central Bank of Nigeria (CBN) has announced new operational mechanism for Bureau De Changes (BDCs) and introduced an Importers’ Foreign Exchange (FX) price verification system portal to curb speculative demand.
These measures are necessary as confidence in the local currency is being undermined due to the volatility of exchange rate.
Market watchers say that investors are wary of entering the economy at a lower official rate and exiting at a higher BDC rate.
Such discrepancy leads investors to lose capital and sometimes their gains.
In support of the drive to improve the efficiency of the Nigerian Foreign Exchange Market, the CBN released the underlisted operational mechanism for the BDC segment of the market.
“The spread on buying and selling by BDC operators shall be within an allowable limit of – 2.5 percent to +2.5 percent of the Nigerian Foreign Exchange market window weighted average rate of the previous day; mandatory rendition by BDC operators of the statutory periodic reports (daily, weekly, monthly, quarterly and yearly) on the Financial Institution Forex Rendition System (FIFX), which has been upgraded to meet individual operator’s requirements; operators are to note that with effect from the date of this circular, non-rendition of returns would attract sanctions which may include withdrawal of operating license; where operators do not have any transaction within the period, they are expected to render nil returns.”
Similarly, the CBN introduced an importers’ FX price verification system portal to curb the speculative demand that has recently hurt the naira’s value in FX markets.
According to the CBN circular, all applications for Forms M shall be accompanied by a valid price verification report generated from the price verification portal, effective August 31, 2023.
The price verification portal is an electronic trade portal established in conjunction with the Nigeria Customs Service to verify the actual prices of FX-required commodities/services. The portal would ensure that invoices provided by importers were not inflated and were directed strictly to the payment of required services or products, not diverted to the parallel market FX market.
Analysts note that the portal can only approve invoices if the price does not exceed 2.5 percent of the verified benchmark prices of services and products.
The electronic portal is believed to curb speculative demand effectively, preserve FX availability and strengthen the naira. Although some importers have raised concerns about service price determination, analysts believe the CBN can link different service providers to generate an average price.
The initiative should further suppress dollar supply and demand in the parallel market in the interim, strengthening the naira.
In the mid-to-long term, analysts at Proshare Research said the country must address all FX source challenges to achieve sustainable currency appreciation and accretion to foreign reserves.
As of August 17, the naira appreciated to N860/$ from N945/$ on August 15.
Mid-June, the CBN announced the abolishment of the other rates in the official window, unifying all the rates therein.
The most important part of the policy announcement was the devaluation of the naira by 57 percent from N477/$ to N750/$. As of August 15, the official rate had dropped to N774/$.
Most analysts believed that at N477/$, the naira was overvalued, accounting for large speculative demand for the dollar.
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