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Home Markets Currencies

Another anomally as bank rates trade higher than black market

Onome Ohwovoriole by Onome Ohwovoriole
July 11, 2017
in Currencies
Another anomally as bank rates trade higher than black market
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The Central Bank of Nigeria (CBN) may have to tinker with its foreign exchange policies as official bank dollar rates are beginning to spike again compared to parallel market rates. A survey by Nairametrics reveals that parallel market rate for dollar currently goes for N367. Transactions using GT Bank and Access bank cards were processed at N380 and N375 recently. For most Nigerians, they now buy black market, deposit it in their domiciliary account and run their transfers.

Why the disparity ?

A discussion with several bankers revealed that the handling cost of keeping forex is a major reason for the depreciation of the naira at bank rates. As banks offer card related services or physical cash deposits, they incur charges which are often passed on to their customers in the form of a higher premium to the exchange rate.  The parallel market is however a different market where dealers buy and sell at any volume, often time without owning the underlying cash being transacted. In fact, they often rely on banks to move their funds from a seller to a buyer and also to deposit their spreads (margin made from selling FX).  This they claim is one of the reasons why the gap continues to widen.

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Consequences of the gap

Parallel market rates being cheaper will push demand towards that end of the market, which makes the CBN’s goal of converging all exchange rates in the country a pipe dream. The disparity in rates could also send encourage round tripping in the foreign exchange markets.

The apex bank had in the past few months opened a variety of windows so as to ease the downward fall in parallel market rates, and meet the needs of individuals and firms that had difficulties accessing foreign exchange.

Tags: CBN NigeriaNaira exchange rateQuickTakes
Onome Ohwovoriole

Onome Ohwovoriole

Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training. He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE). He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time, he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy. You can contact him via onome.ohwovoriole@nairametrics.com

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