President Bola Tinubu has approved the Central Bank of Nigeria’s request for a massive devaluation of the Naira ) as the currency traded at N631 to the dollar at the Importers and Exporters (I&E) market on Wednesday from N461.6 when it was sold at the window the day before.
In his inaugural speech, minutes after he was inaugurated as the 16th president of the country, Tinubu said, “Monetary policy needs a thorough house cleaning. The Central Bank must work towards a unified exchange rate. This will direct funds away from arbitrage into meaningful investment in the plant, equipment and jobs that power the real economy.”
The I&E window and the parallel market have had a large spread, which experts say encouraged round-tripping with Bureau de Change operators.
The CBN has come up with a number of solutions to the problem, including halting all currency sales to BDCs.
President Tinubu held a meeting at the presidential villa on Tuesday with the senior brass of strategic organizations, including CBN Governor Godwin Emefiele.
Neither the presidency nor Emefiele disclosed the outcome of the briefing at the conclusion of the meeting. However, it was heard that the meeting included the topic of the exchange rate.
The Nigerian National Petroleum Company Limited’s Group Chief Executive Officer, Mele Kyari, and the President also had a meeting. It was learned that the abolition of the fuel subsidy was discussed.
Investigation, however, showed that the central bank sold the spot rate to banks on behalf of their customers at N631 to a dollar at the restart of the weekly foreign exchange bidding, and most bidders received the full amount they sought.
One of the clients reportedly submitted an application and had their complete request accepted for N631 as opposed to N461.6.
Prices on the parallel market have also been trending lower as a result of the shift. According to this newspaper’s research, rates in Abuja and Kano dropped from N750 to a dollar in the morning to N745 by the evening.
On anticipation of a potential shift in exchange rate management when Tinubu assumes office on Monday, the naira declined in the parallel market to its worst level in a year.
According to Umar Salisu, a BDC operator who monitors the data in the nation’s commercial capital, the naira fell to N762 to the dollar on Friday from 775 the day before.
After stable for the most of this year, the unit has been declining significantly in the secondary market since last week.
The market arbitrage (difference between the official and parallel markets) has widened in the past three years from N100 per dollar or about 30 per cent in 2020 to over N400 per dollar (above 100 per cent) sometime last year when the black market rate spiked to N880/$.
Development institutions, including the International Monetary Fund (IMF), are wary of exchange rate differential in excess of five per cent and warn that such could trigger unhealthy manipulation that could negatively affect other efforts on market stabilisation.
From 2020 to 2022, the CBN spent about $42 billion intervening in the foreign exchange market to stabilise the naira. The amount was sold to the end-users, including students and tourists, at the official rates, which are way off the effective exchange rate of the naira.
According to the Financial Stability Report, a publication of the CBN, the apex bank sold $9.2 billion in the market in the first half of last year.
The full data for the second half are not available, but the annualised value is assumed to have surpassed that, especially with the level of social and economic activities associated with the second half.
Whereas the black market rate averaged N730/$, the I&E window finished at suppressed N447/$ on average. That puts the arbitrage at N283/$, pushing the CBN’s FX subsidy in the year to about N3.65 trillion.
