Naira
Nigerian Naira Plummets Against US Dollar Amidst Foreign Exchange Market Changes
Surge in Dollar Demand Causes Naira to Decline by 16%
Forex Scarcity and $3.7 Billion LCs Matured Exacerbate Naira Depreciation
Central Bank of Nigeria Introduces New Forex Measures, Consolidates Segments
The Nigerian Naira closed lower against the United States Dollar on Monday as both international and local investors tried to wrap their heads around a series of changes taking place in the foreign exchange market and the economy at large.
The local currency declined by 16 percent to N770.38 to a United Dollar in the Investors and Exporters (I&E) window, largely due to the surge in demand for the greenback. In the parallel market, popularly known as the black market, the naira appreciated to N757 per dollar.
Currency traders attributed the depreciation in Naira value to the increase in Dollar demand to over $3.7 billion in matured Letters of Credit (LCs). The situation is aggravated by a shortage of supply as the designated window has not witnessed significant forex inflows since the reintroduction of the willing seller, willing buyer model by the Central Bank of Nigeria (CBN).
The development in the I&E window follows the new forex measures announced by the CBN on Wednesday.
Announcing the new measures in a statement titled, “Operational Changes to the Foreign Exchange Market”, Director, Financial Markets, Dr. Angela Sere-Ejembi, said, “The Central Bank of Nigeria (CBN) wishes to inform all authorized dealers and the general public of the following immediate changes to operations in the Nigerian Foreign Exchange (FX) Market:
“Abolishment of segmentation. All segments are now collapsed into the Investors and Exporters (I&E) window. Applications for medicals, school fees, BTA/PTA, and SMEs would continue to be processed through deposit money banks.
“Re-introduction of the “Willing Buyer, Willing Seller” model at the I&E Window. Operations in this window shall be guided by the extant circular on the establishment of the window, dated 21 April 2017 and referenced FMD/DIR/CIR/GEN/08/007. All eligible transactions are permitted to access foreign exchange at this window.
“The operational rate for all government-related transactions shall be the weighted average rate of the preceding day’s executed transactions at the I&E window, calculated to two (2) decimal places.
“Proscription of trading limits on oversold FX positions with permission to hedge short positions with Over-The Counter-futures. Limits on overbought positions shall be zero.
“Re-introduction of order-based two-way quotes, with bid-ask spread of N1. All transactions shall be cleared by a Central Counter Party (CCP).
“Reintroduction of Order Book to ensure transparency of orders and seamless execution of trades.
“The operational hours of trades shall be from 9am to 4pm, Nigeria time.
“Cessation of RT200 Rebate Scheme and the Naira4Dollar Remittance Scheme, with effect from 30 June 2023.
“Further guidance on these matters shall be communicated in due course. All market participants and the general public are kindly enjoined to abide by these rules.”