Dealers in Nigeria’s Parallel market for dealers are seeking to formalise trading in the often opaque and thinly traded market.
Aminu Gwadabe, the head of Nigeria’s bureaux de change association, told Reuters that retail currency operators were working to introduce a single quote across the parallel market and maintain a bid-ask spread of 3.5 percent for trades.
This suggest that the parallel market are also not comfortable with the volatility in the market which on its own has introduced another level of arbitrage in the parallel market. For example, you could buy the dollar at N380 in Lagos and sell it at N390 in Abuja on the same day. This does not work out well for them.
Analysts believe this is probably the first stage towards floating the naira. With a “self regulated” market where dollar can trade at market determined price, buyers and sellers are able to drastically reduce the arbitrage that currently exist at least at the parallel market. If this happens, the CBN will at some point have no choice but to abandon its official window. All of this of course depends on whether they will even allow such a market to exist on any formal basis.
Nigeria’s naira firmed sharply to N375 on the parallel market on Monday after importers started to reduce demand for dollars following President Muhammadu Buhari’s defiance to devalue the currency hit hard by the fall in global oil prices, one trader said.
The naira firmed 4 percent from Friday’s close of N390 to the dollar, while the official interbank rate remained at N199.50 to the dollar at the close of trading on Monday.
