Forex

Central Bank of Nigeria’s Unsettled FX Backlog Threatens Investor Confidence and Currency Reform

The suspicion is that Nigeria’s external reserves are much less than what the CBN reports. The level of opacity is alarming and is a real drag on investor confidence

Published

11 months ago

July 6, 2023

Investors King

The Central Bank of Nigeria (CBN) is facing a significant challenge with its unsettled foreign exchange (FX) backlog owed to local businesses, which is now having detrimental effects on investor confidence and the success of its latest currency reform measures.

The apex bank previously sold approximately $200 million in FX forward contracts every two weeks. However, as dollar inflows dried up and the demand for dollars surged, the backlog grew exponentially.

The growing concern over the backlog extends beyond Nigerian businesses, including manufacturers and importers who have been waiting in lengthy queues for dollars.

The situation is also eroding foreign investor confidence in the CBN’s recent decision to float the naira as foreign investors, whose involvement in the FX market can significantly impact the success of the CBN’s reform efforts, are perplexed as to why the central bank is unable to utilize its $34 billion external reserves to settle the outstanding contracts.

Estimates suggest that the backlog ranges between $2 billion and $2.5 billion, representing less than 10 percent of the country’s external reserves. Sources familiar with the situation have revealed that the six-month backlog of forward contracts is severely undermining investor confidence, stating, “Our CBN is the only central bank in the world that defaults on obligations to investors.”

Currency forwards, which are binding contracts in the foreign exchange market, allow for the locking in of exchange rates for future currency transactions. These instruments serve as essential hedging tools, providing stability in uncertain currency markets.

Market insiders have disclosed that clearing the backlog is a top priority for Nigeria’s new administration. However, the pace of resolution has been disappointingly slow for many investors.

This has raised suspicions among some fund managers, with one based in South Africa, who preferred to remain anonymous, stating, “The suspicion is that Nigeria’s external reserves are much less than what the CBN reports. The level of opacity is alarming and is a real drag on investor confidence.”

Nigeria’s external reserves are expected to provide a minimum of seven months’ worth of import cover. Yet, despite having more substantial reserves than other central banks that fulfill their obligations, the CBN continues to default on dollar payments.

The persistence of non-settlement of forward contracts by the CBN is setting a detrimental precedent, according to a senior business leader who has been in the queue for dollars since last year.

They commented, “It used to be inconceivable that the CBN would default on its obligations to the market for protracted periods, but it has become the norm.”

President Bola Tinubu has pledged to thoroughly revamp the monetary policy, leading to the suspension of CBN governor Godwin Emefiele and the implementation of currency floating within just one month. Foreign investors are closely observing how the CBN handles the dollar backlog, as it casts a shadow of doubt over the reforms championed by the new government.

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Naira

Black Market Dollar to Naira Exchange Rate Today 17th May 2024

The black market, also known as the parallel market or Aboki fx, US dollar to Nigerian Naira exchange rate as of May 17th, 2024 stood at 1 USD to ₦1,540.

Published

18 hours ago

May 17, 2024

Samed Olukoya

The black market, also known as the parallel market or Aboki fx, US dollar to Nigerian Naira exchange rate as of May 17th, 2024 stood at 1 USD to ₦1,540.

Recent data from Bureau De Change (BDC) reveals that buyers in the Lagos Parallel Market purchased a dollar for ₦1,560 and sold it at ₦1,550 on Thursday, May 16th, 2024.

This indicates a slight improvement in the Naira exchange rate when compared to today’s rate.

The black market rate plays a crucial role for investors and participants, offering a real-time reflection of currency dynamics outside official or regulated exchange channels.

Monitoring these rates provides insights into the immediate value of the Naira against the dollar, guiding decision-making processes for individuals and businesses alike.

It’s important to note that while the black market offers valuable insights, the Central Bank of Nigeria (CBN) does not officially recognize its existence.

The CBN advises individuals engaging in forex transactions to utilize official banking channels, emphasizing the importance of compliance with regulatory frameworks.

How much is dollar to naira today in the black market

For those navigating the currency exchange landscape, here are the latest figures for the black market exchange rate:

Buying Rate: ₦1,540
Selling Rate: ₦1,530

As economic conditions continue to evolve, staying informed about currency exchange rates empowers individuals to make informed financial decisions. While the black market provides immediate insights, adherence to regulatory guidelines ensures stability and transparency in forex transactions.

Forex

SEC and ABCON Explore Collaboration for ‘Kolectyomoni’ Digital Currency Platform

Published

19 hours ago

May 17, 2024

Samed Olukoya

The Association of Bureaux De Change Operators of Nigeria (ABCON) has initiated talks with the Securities and Exchange Commission (SEC) to explore collaboration on its upcoming digital currency market platform, ‘Kolectyomoni’.

This move was underscored during an official visit by ABCON representatives to the newly appointed Director General of the SEC, Dr. Timi Agama. Aminu Gwadabe, President of ABCON, conveyed the association’s eagerness to engage with SEC to ensure the smooth operation of its digital currency platform.

Gwadabe emphasized that ABCON recognizes the regulatory oversight of SEC in the financial sector and seeks its guidance to navigate the complexities of the digital currency market.

He pointed out that while digital currencies hold immense potential for financial inclusion and innovation, they also present regulatory challenges that require collaborative efforts between industry stakeholders and regulatory bodies.

Highlighting the significance of embracing digital currencies, Gwadabe noted, “The future of BDC’s business is digital currency.”

He stressed the growing adoption of digital currencies among Nigerians, citing statistics that reveal a rising number of participants in the digital currency ecosystem, with a substantial market size of $9 billion annually.

In response, Dr. Timi Agama expressed SEC’s openness to support and facilitate the growth of the digital currency sector in Nigeria.

He acknowledged ABCON’s initiative in launching the ‘Kolectyomoni’ platform and assured of SEC’s cooperation in providing regulatory guidance and oversight.

Agama reaffirmed SEC’s commitment to fostering innovation in the financial sector while ensuring investor protection and market integrity.

He underscored the importance of collaboration between regulators and industry players to develop robust frameworks that foster innovation and safeguard against potential risks.

Furthermore, Agama encouraged ABCON to finalize the development of the ‘Kolectyomoni’ digital currency platform and submit it to the SEC for thorough review and assessment by the technical team.

He emphasized the need for timely regulatory oversight to address emerging trends in the digital currency market and maintain regulatory compliance.

Naira

Black Market Dollar to Naira Exchange Rate Today 16th May 2024

The black market, also known as the parallel market or Aboki fx, US dollar to Nigerian Naira exchange rate as of May 16th, 2024 stood at 1 USD to ₦1,560.

Published

2 days ago

May 16, 2024

Samed Olukoya

The black market, also known as the parallel market or Aboki fx, US dollar to Nigerian Naira exchange rate as of May 16th, 2024 stood at 1 USD to ₦1,560.

Recent data from Bureau De Change (BDC) reveals that buyers in the Lagos Parallel Market purchased a dollar for ₦1,530 and sold it at ₦1,520 on Wednesday, May 15th, 2024.

This indicates a decline in the Naira exchange rate compared to the current rate.

The black market rate plays a crucial role for investors and participants, offering a real-time reflection of currency dynamics outside official or regulated exchange channels.

Monitoring these rates provides insights into the immediate value of the Naira against the dollar, guiding decision-making processes for individuals and businesses alike.

It’s important to note that while the black market offers valuable insights, the Central Bank of Nigeria (CBN) does not officially recognize its existence.

The CBN advises individuals engaging in forex transactions to utilize official banking channels, emphasizing the importance of compliance with regulatory frameworks.