Naira drops to N590 per dollar, as devaluation fears grow.
As a lingering dread of devaluation and mistrust of the apex bank’s policies haunted the Nigerian currency, it plummeted throughout the markets to a recent low of N590 per dollar.
Despite an increase in national forex reserves, the naira declined on the official and parallel markets over the weekend, according to currency trade reports. The value of the country’s foreign exchange reserves climbed by $53.48 million to $39.71 billion.
The naira declined 0.2 percent to N417.50 per dollar at the Central Bank of Nigeria’s (CBN) regulated Investors and Exporters (I & E) Window. The naira, on the other hand, devalued by 0.5 percent in the parallel market, where the majority of independent and retail end users get their FX.
Total turnover in the I & E Window fell by 14.7 percent to $498.85 million, with trades taking place between N410 and N453.15 per dollar.
The country’s dismal currency revenues and the CBN’s inability to promote forex inflows were cited by most pundits as reasons for further naira depreciation.
Further modifications in the naira-dollar peg closer to fair value and exchange rate flexibility, according to Cordros Group analysts, are critical to luring foreign inflows.
Foreign inflows, which have been interrupted by a lack of global investor confidence in naira rate management, are crucial to maintaining FX liquidity in the longer term, according to analysts, as accretion to the national reserves will be modest given the low crude oil output levels.
Mr. Bismarck Rewane, a member of the Presidential Economic Advisory Council (PEAC), had taken a critical look at the apex bank’s naira management measures, classifying them as “poor” or “uncertain” in performance. A number of independent analysts, as well as financial and economic research businesses, hold the same opinion.
According to him, the top bank’s recent initiatives to safeguard the country’s currency in the FX market have had little or mixed results.
He believes the chances of the apex bank’s current move, the N65 rebate per dollar scheme, succeeding are slim.
Rewane gave each of the apex bank’s four initiatives a score of low, uncertain, or no. The “Naira for Dollar” scheme, import limitations, the elimination of dollar sales to Bureau de Change (BDC), and the most recent “N65 refund per dollar” plan were among these initiatives.
According to him, the success rate of the “Naira for dollar” scheme is “poor,” while the success rate of import restrictions and the abolition of dollar sales to BDCs is “uncertain.”
The present forex market characteristics, he noted, have cast doubt on the effectiveness of the latest “N65 rebate per dollar,” stressing that the policy’s intended audience may not respond positively to the initiative.
He explained that, with a parallel market exchange rate of roughly N580 per dollar vs N416 per dollar on the official market, the N99 per dollar difference between the official and parallel markets, even after factoring in the N65 rebate, is too appealing for exporters to ignore.
“Will exporters, out of patriotism, be willing to give up N99 per dollar?” In his most recent review, Rewane, who is also the Managing Director of the Financial Derivatives Company (FDC), replied, “No.”
According to him, the “N65 per dollar refund would be mostly ignored,” and “the contribution of non-oil exports to FX revenue will be flat.”
He stated that the apex bank is confronted with the difficult decision of either raising forex supply to drive down prices or lifting the naira exchange rate to its fair value, hence increasing forex supply. This will bring the market closer to equilibrium, closing the exceptional supply-demand gap that has kept the price differential high.
While the naira has depreciated by 259 percent over the last decade, other oil heavyweights such as Saudi Arabia and Kuwait have maintained steady, unchanged currency exchange rates. He pointed out that oil producers with stable currencies used their oil income optimally, economically, and prudently.
The CBN introduced its “Naira-4-Dollar” Scheme in early 2021, promising to increase forex inflows and reserves. The apex bank used the initiative to encourage Nigerians living abroad to send their money through designated agents, or International Money Transfer Organizations (IMTOs), rather than using the parallel market.
All beneficiaries of diaspora remittances through CBN-licensed IMTOs will now be paid N5 for every dollar received as remittance inflow, according to a CBN circular dated March 5, 2021. The CBN would pay remittance beneficiaries an incentive of N5 for every dollar sent by the sender and collected by the designated beneficiary through commercial banks. The incentive will be provided to the recipients whether they choose to receive the dollar in cash at a bank or have it transferred into their domiciliary account.
Mr. Godwin Emefiele, Governor of the Central Bank of Nigeria (CBN), stated that the “Naira for Dollar” policy aims to “increase the transparency of remittance inflows and reduce rent-seeking activities,” and that “the new policy measure will encourage banks and financial institutions to develop products and investment vehicles geared toward attracting investments from Nigerians in the diaspora.”
He said the measure would help Nigerians in the diaspora send remittances through formal bank channels at a lower cost and with greater convenience, noting that the use of remittance fee reimbursements had been critical in supporting improved inflows of remittances to South Asian countries and improving their balance of payments position following the COVID-19 pandemic.
The policy, according to Emefiele, is projected to broaden the scope and scale of foreign exchange inflows into the country, thereby stabilizing the exchange rate and bolstering external reserves.
In January 2016, the apex bank halted dollar transactions to BDCs following a similar allegation of racketeering. The CBN then issued a similar direction to commercial banks, instructing them to completely assume responsibility for enabling forex sales to Nigerians in need of foreign currency for items not on the CBN’s list of 41 forbidden items.
This year, the apex bank also launched a new strategy to boost the economy’s dollar supply. The “RT200 FX Programme” or “Race to $200 billion in FX Repatriation,” according to Emefiele, aims to achieve a goal of $200 billion in currency repatriation from non-oil exports over the next three to five years.
Non-oil commodities expansion facility, dedicated non-oil export terminal, non-oil forex rebate, value-adding exports facility, and biennial non-oil exports conference are among the five pillars of the new system.
