In another twist in the drama called Nigerian flexible exchange rate market, parallel market operators offered to buy dollars from willing sellers at prices between N390 and N405. This compares to the N470 exchange rate quoted by some parallel market operators as their selling price on Wednesday.
We asked some operators why the huge disparity and if the crash in offer prices had anything to with the election of Donald Trump as President. To our amazement, some of the dealers informed Nairametrics that they were under “instruction from the CBN” not to sell forex above N390. These seemed confusing considering that the CBN did not have any control over the market price of the dollar on the streets of Lagos.
However, on further inquiry a BDC operator informed Nairametrics that the instruction was actually to Bureau De Change operators. They were instructed not to sell above the margin of 2% over the N380 currently being sold to them under the foreign remittances scheme introduced by the CBN. The arrangement mandated BDC’s to sell dollars purchased via foreign remittances at no more than N390.
However, what is being done is that some BDC’s in turn sell the dollars to proxy companies (sometimes owned by themselves) and then the proxies then offload to the parallel market making a nice spread. The CBN now appears to be cracking down on some of these activities through a form of surveillance. The effect of this is that dollars had become scarce in some parts of Lagos, with those who wish to sell holding back from selling at N390-N400 (as the operators are bidding).
How long this will last is unclear, however it appears the CBN is once again policing a market that is expected to operated freely considering that the exchange rate was now floating.
Update
We have also just learnt that the CBN, the State Security Service (SSS), the Nigeria Police Force (NPF) and the Bureau De Change Operators (BDCs) also met yesterday over the exchange rate disparity.
According a Thisday report, “the CBN and the security agencies present at the meeting made the BDC operators to understand that a lot of foreign investors are not comfortable with the wide gap between the three arms of the FX market and would only come in if the situation is addressed.” Our analysts believe the presence of the SSS at the meeting was to let the BDC operators know that security agents were “concerned” about their activities and will be monitoring them.
The President, Association of Bureau De Change Operators of Nigeria (ABCON), Mr. Aminu Gwadabe, also confirmed the development in a phone interview yesterday
“We were told to follow the rules and make sure we cooperate with them. We have agreed to carry our members along on that, in ensuring that compliance is strictly observed. We have been sensitising our members and we have been holding meetings.
“We want to have same regulation that is happening within the banking industry for BDCs. If you go to any bank, you see the FX rates written boldly. So, we have promised the government that we would adhere to the rules. So, we are looking at a rate between N390/$ and N400/$. That is, we buy at N390/$ and sell at N400 to retail customers.”
