BY  Tony Chukwunyem

It was just slightly over two months ago that Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, told BloombergTV that the apex bank was “relatively pleased” with the progress it had made in stabilising the naira and that he believed that the country had, “more or less seen the worst in terms of (naira) volatility.”

Stressing that the regulator would continue to work hard to ensure stability in the forex market, he said: “We are also very alive to observing the way and manner in which that market operates and ensuring that it gives the best value that can be accomplished using certain tools.”

Cardoso, who noted that reviving confidence in the naira was crucial for Nigeria to lure investors, said that although the apex bank was relatively satisfied with its efforts in that regard, it recognised that it needed to do more and that it(stabilising the naira) is “continuous work in progress”.

He vowed that the CBN “will do everything possible to ensure that we continue to manage the macroeconomic fundamentals that affect that.”

Depreciation

However, last week, the naira sank to its lowest against the greenback in nearly six months. Although, according to FMDQ , the naira closed at N1,593.32/$1 on the official market last Friday compared to N1,639.41/$1 on the previous day, it maintained a downward trend for most part of last week.

For instance, the local currency which closed at N1,585.77/$1 on the official market last Monday depreciated to N1,611.34/$1 and N1,625.88/$1 on Tuesday and Wednesday respectively. The naira did not also fare any better on the parallel market last week as it fell to N1,650 per dollar on Friday compared to N1,635/$1 at the start of the week.

Currency dealers, especially Bureaux De Change (BDCs) operators, attributed the naira’s weakness to inadequate forex supply from the Central Bank of Nigeria (CBN).

According to the forex dealers, it was not a coincidence that the naira depreciated at a time when it appeared as if the apex bank was scaling back its intervention in the forex market.

Indeed, with the naira falling to an all-time low of N1,900/$1 on the parallel market in February this year, the CBN, as part of the slew of measures it was then churning out to ensure exchange rate stability, resumed its sale of foreign exchange to BDC operators, which it had discontinued on July 27, 2021, citing unethical practices by the BDCs.

Sales to BDCs

The resumption of forex sales to the money changers, which came in the wake of the apex bank’s revocation of licenses of over 4173 BDC operators in February, saw it selling $20,000 to each eligible BDC at the rate of N1,301/$ and directing the operators to sell to end-users at a margin “not more than one percent above the purchase rate from CBN.”

On March 26, the CBN sold $10,000 to each eligible BDC at a rate of N1,251/$1, but this time, it directed them to sell the dollars to eligible customers at a rate not exceeding 1.5 per cent above the purchase price.

There were two FX sales to the BDCs in April with the apex bank first offering $10,000 to each BDC at a rate of N1,101/$1 and another $10,000 at N1,021/$1.

In fact, analysts believe that the forex sales to BDCs was key to the naira recovering from an all-time low of N1,900/1$ on the parallel market in February this year, to about N1,100/$1 in April.

The naira’s rebound pushed Goldman Sachs, which had earlier boldly forecast in early March that the naira would rebound to N1,200 per dollar between Q2’24 and Q2’25, into predicting in April that the local currency could strengthen further to below N1,000 to the dollar as a result of the effectiveness of the CBN’s forex measures.

Interestingly, the naira’s rebound also resulted in one of the programmes held during the International Monetary Fund (IMF) and World Bank annual meetings held in Washington in April this year, being centered around Nigeria’s FX market reforms.

Speaking at the event, Cardoso rejected the widespread view that the apex bank depleted its dollar buffers to defend the naira. He stressed that defending the naira would be contrary to the CBN’s forex liberalisation policy that aims to ensure that market forces determine the value of the naira.

He said: “What we’re encouraging for the markets is willing buyer, willing seller, price discovery and ultimately, I perceive a future where the central bank will really not need to intervene, except in very, very unusual circumstances.

“What is important to us is that there’s sufficient liquidity in the market which I’ve spoken about here today… and that will continue. So, as long as we have a vibrant currency market, why do we need

I perceive a future where the central bank will really not need to intervene, except in very, very unusual circumstances

to go in there to intervene? We don’t need to.” However, it would appear Cardoso later modified his views with regard to interventions by the CBN in the forex market. Reason: between July and August, the regulator pumped hundreds of millions of dollars into the forex market, a move, analysts said, was aimed at stabilising the naira.

Increased fx interventions

Specifically, on July 10, the CBN sold the sum of $122,671,000 to 46 authorised dealers and bought the sum of $2.5 million from one authorised dealer. On July 11, it sold the sum of $55,171, 000 to 19 authorised dealers and a week later, announced that it had approved the sale of the sum of $20,000 to each eligible BDC at the rate of N1,450/$1.

Within the same period, the apex bank sold the total sum of $106.5 million forex to 29 authorised dealer banks and bought $9000,500 from four authorized dealer banks at rates between NI,510.00/$1 and NI,550.00/$1.

Reintroduction of rDAS

Early last month, the CBN took additional measures to bolster the naira, by reintroducing the Retail Dutch Auction System (rDAS), which it had scrapped in February 2015, over what it described as “undesirable practices including round-tripping, speculative demand and rent-seeking.”

The regulator explained that it reintroduced the rDAS, having noticed, “growing unmet FX demand from end users with banks,” which it said, “has continued to increase the demand pressure in the FX market with adverse impact of the exchange rate of the naira.”

Thus, in the circular, announcing the reintroduction of the rDAS, the CBN directed authorised dealer banks to provide it with a “legitimate list of all outstanding fx demand by Fx users,” which should contain information, such as, the customer’s name, address, contact information- including email, telephone number and Bank Verification Number (BVN)-, account number, Tax Identification Number (TIN), purpose for which the Fx is required, Form A or Form M and Letter of Credit number.

According to details of the rDAS held on August 7, released by the CBN, total bid valued at $1.18 billion was received from 32 Authorised Dealers Banks (ADBs), of which $876.26 million from 26 banks qualified at a cut off rate of N1495/$.

The apex bank also disclosed that bids from six banks valued at $313.69 million were disqualified. But as analysts pointed out, after this rDAS, there was no intervention by the CBN until last Friday when the banking watchdog issued a circular, announcing that it had approved the sale of $20,000 to each eligible BDC operator at N1,580/$1.

The circular said: “This is to inform the Bureau De Change (BDC) Operators and the general public that we are providing more liquidity into the market. “To this end, the CBN has approved the sale of US$20,000.00 to each eligible BDC at the rate of N1,580/$.

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