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Home Markets Currencies

How to profit from arbitrage when you use your ATM card abroad.

Nairametrics by Nairametrics
April 10, 2015
in Currencies, Politics
How to profit from arbitrage when you use your ATM card abroad.
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Naira dollar arbitrage

The CBN and the bankers committee issued a statement after the Bankers committee meeting saying that it will from now on limit the amount of withdrawals that can be made by ATM card users  from ATM machines abroad. They claim they have observed arbitrage in the system and want to curb it. But how does the arbitrage work? Here is an example

Mr A plans to travel to the US and loads up his ATM card with N5million. However, all he actually needs to spend is N1million for his shopping. He then withdraws N4million in dollars at the interbank rate of (for example) N205 giving him about $19,300 assuming he incurs a $200 fee.

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He then travels back to Nigeria and then sells the $19,300 for N220 at the black market pocketing a profit of N246,000. Now imagine this happening on a larger scale and the multiplier effects it causes when a lot of people do the same thing. That is why it is bad and why you shouldn’t do it.

Despite the negativity surrounding arbitrage, the response of the CBN to curb withdrawals does look high handed. By doing this they are basically shutting off people who need to withdraw forex for legitimate transactions. Rather than seek better ways to curb this issue they have now resorted to throwing away the baby and the bath water.

It’s also upsetting to most Nigerians considering that the CBN is now doing this as part of its efforts to stem the fall of the Naira. A reason most people attribute to politicians who stashed up dollars ahead of the 2015 elections.

Tags: Black MarketCapital controlsCBN Forex PolicyNaira DevaluationNews Review
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