FX speculators walk a tightrope

· BDC operators get dollar at N393/$

Currency speculators, who have in the past week engaged in an aggressive ‘stocking’ of the dollar at a premium in expectation of a near-future rise in the exchange rate, may be facing heightened risks as the value of the greenback against the naira could pullback in the coming days.

Though the dollar maintained a marginal edge against the local currency, market analysts said the pressure could ease as players begin to re-evaluate the speculation on exchange convergence, which President of the Association of Bureaux De Change Operators of Nigeria (ABCON), Dr. Aminu Gwadabe, dismissed as a mere “rumour”.

The demand for dollar at both investors’ and exporters’ (I & E) window and parallel market intensified in the past days following reports that the removal of the official exchange ratefrom website of the Central Bank of Nigeria (CBN) could mean the commencement of the planned rate convergence.

Thus, the naira has faced renewed pressure at both Investors’ and Exporters’ (I & E) window and parallel market. The media reports also came at a time when most foreign portfolio investors were booking profits, one of the factors pushing up the FX demand curve. While currency speculators have increased their portfolios at a premium, the information driving the behaviour of the market, which the apex bank has not officially confirmed, could be false after all.

At the weekend, Gwadabe, who warned that speculators could lose as much as N100 billion in the next one month, disclosed that Bureaux De Change (BDC) operators were funded at $393/$ last Friday, suggesting that the FX rate unification is yet to take off.

The CBN Governor, Godwin Emefiele, last year, disclosed the apex bank’s intention to pursue the unification of different rates around the I & E window. Recently, the Minister of Finance, Budget and National Planning, Zainab Ahmed, also hinted that official transactions, including monthly monetisation of government earnings, would be done using the market rate.

When the CBN recently deleted the N379/$ official exchange rate from its site, analysts suggested the much-expected harmonisation might have commenced after all. Since the decision, the naira has witnessed a marginal depreciation at the black market and I & E window otherwise known as the Nigerian Autonomous Foreign Exchange (NAFEX) market and the parallel market.

Last week, the naira closed trading at the I & E window at N412/$ after the dollar gained 0.17 per cent. It opened Friday trading at N411.08/$. But activities at the parallel market continued to swing around N485/$ with varying degrees of white noise at the weekend.

While the renewed pressure, which is also driven by the profit-booking at the equities market, may have fueled the speculative behaviour, Gwadabe said the CBN’s continuous intervention in the BDC market was a major dragnet the speculator, who do not mean well for the economy, must be wary of.

He disclosed at the weekend that the CBN is committed to funding over 5,000 BDC operators nationwide to increase liquidity and protect the value of the naira. He urged for the return of normal business as the ongoing speculation distorting market stability would come at a huge loss to speculators.

The ABCON boss linked the continued fall of the naira at the parallel market and I&E windows to hoarding of dollars, a situation, he said, has a negative consequence for economic growth. He said the perpetrators are creating artificial scarcity in the FX market.

Gwadabe promised that ABCON and the CBN-licensed BDCs would fight alongside the regulator to ensure that speculators lose their capital should they persist in the illegal activity. He said the speculation that the CBN has adopted the NAFEX for official transactions was not true as BDC rate remained at N393/$.

“The ABCON and CBN have observed with disdain, the speculative behaviour currently affecting the market with the misinformation that the CBN has adopted I & E window as its official rate. The above information is not true because as operators, we still funded our accounts at our normal rates of N393/$ and not I & E window rates for our operation this Friday,” he said.

The ABCON boss, thus, warned his colleagues against joining the speculative trading behaviour as CBN remains resolute in its partnership with the group and is looking at various options to stimulate liquidity.

“ABCON will continue to keep you posted and guide you accordingly. We urge all members to continue to give the CBN the utmost support as a strategic partner and in the interest of the economy,” he advised.

Gwadabe said the Naira 4 Dollar Scheme being implemented by the CBN would further increase liquidity and improve the fate of the naira.
The policy, he added, would provide Nigerians in the Diaspora with cheaper and more convenient ways of sending remittances to the country and increase dollar inflows.

Emefiele had said the CBN introduced the rebate of N5 for every $1 remitted through CBN-licensed international money transfer operators (IMTOs) to boost the supply side of the FX market. He emphasized that the new measure would help to make the process of sending remittance through formal channels attractive to Nigerians in the diaspora.

The apex bank, since last year, embarked on several reforms in the remittance market as part of its renewed efforts to shore up FX liquidity. The reforms followed a global decline in diaspora remittances and foreign capital inflow, a situation partly attributed to the COVID-19 pandemic.

Last year, diaspora remittance inflow to Nigeria contracted 27 per cent year-on-year (YoY), falling from $23.55 billion recorded in 2019 to 17.2 per cent in 2020.

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