Will CBN’s Latest Move Against The Black Market Work?
Nairametrics| The Central Bank of Nigeria issued a press release on Monday confirming that on Friday 7th April 2017 it auctioned the sum of US$418 million at the retail-SMIS at a marginal rate of N310/$ (The airlines, agriculture, petroleum and raw materials/machinery sub sectors benefited from the auction). It also revealed that this was in addition to the sum of US$350 million sold as wholesale auction, BTA/PTA, and school fees during the week.
Despite this confirmation, the black market rate remained at N406/$1 suggesting that the effect of the CBN’s intervention has climaxed. The panic that hit the black market has waned and demand is gradually outpacing supply. Whilst demand in the retail end of the market has been largely met, it appears demand for restricted items, such as those on the 41 banned list, continues to pile pressure on the black market. It is also understood that demand also considered as legitimate, still relies on the black market to meet some of its urgent FX requirements.
Reuters also reported on Monday, that the naira fell to N328.50 on the official market on Monday with only $80,000 traded. The Central Bank in apparent response issued a press release, assuring the market that it will continue to cater for the retail market while and will auction $100 million to be settled between one week and 30 days, as against sixty-day contracts it had written previously.
Critics of the CBN believe the latest move by the CBN will only result in modest gains at the most and is not the solution to the currency crisis. They believe that the CBN will need to remove all forex restrictions, reintroduce a managed float, and allow owners of FX determine what they want to do with the forex they earn. Currently, all FX proceeds from IOCs, export proceeds etc. must be sold to the CBN at the official rate. This creates a monopoly that allows the CBN to determine price arbitrarily making it difficult for other legitimate sources of inflow to import forex into Nigeria.