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U.S. dollar share of global currency reserves rose to 61.9% in Q1 2020 – IMF

IMF’s data showed that global reserves dipped to $11.731 trillion from $11.824 trillion in Q4 2019.

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IMF, Nigerian Manufacturers confirm dollar scarcity, Donald Trump, U.S dollar gains strength, triggered by doubts over COVID-19 vaccine

America’s dominance in the global financial world reflected in a report released by the International Monetary Fund (IMF) yesterday. The U.S. dollar’s share of currency reserves soared to 61.9% in Q1 2020 from the year-ago period, as global central banks amassed the greenback in the wake of the COVID-19 pandemic.

The report, as seen by Reuters, also stated that the U.S dollar’s share remains the highest among all currencies. In the fourth quarter of 2019, the dollar’s share was 60.8%.

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READ ALSO: UPDATED: Nigeria received $5.85 billion capital inflows in Q1 2020 –NBS

Quick facts: Global reserves are assets held by central banks around the world in different currencies, primarily used to support their payment obligations and debts. Global central banks also use their reserves often to support their respective currencies.

However, IMF’s data showed that global reserves dipped to $11.731 trillion from $11.824 trillion in Q4 2019.

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Global reserves held in American dollars totaled $6.794 trillion, or roughly 61.9% of allocated reserves in Q1 2020, while in Q4 2019 U.S dollar reserves were at $6.744 trillion, or 60.8% share.

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“While the dollar share of reserves has been trending lower over the last few years, which reversed somewhat in Q1 amid the COVID-19 shock,” said Goldman Sachs in a research note.

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“While FX valuation adjustments are especially uncertain given the elevated market volatility, it’s likely that the headline increase was flattered by the dollar’s appreciation as well as its safe-haven status,” the bank added.

Patricia

Olumide Adesina a French-born Nigerian, an Investment Professional at Nairametrics Financial Advocates, owners of Nairametrics.com. He is a Certified Investment Trader, with more than a decade working expertise in Investment Trading. A member of the Chartered Financial Analyst Society. Financial Market; Yale University, Behavioral Finance; Duke University. You can follow Olumide on twitter @tokunboadesina or email [email protected]

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Currencies

U.S dollar pull back some gains, investors’ appetite for risk strengthens

Global investors and currency traders are predicting futuristic gains for the greenback.

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U.S dollar pull back some gains, Investors’ appetite for risk strengthens

The U.S dollar pulled back some of its gains recorded previously on Thursday morning as global investors retreated from the safe-haven currency.

The U.S. Dollar Index that monitors the American dollar against a group of other major currencies lost 0.11% to 97.040 at 5.49 am Nigerian time with an appetite for risk increases, as Global stocks continued to rally leading currency traders and investors retreating from the U.S dollar

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Quick fact; The U.S. Dollar Index that tracks the American dollar against a basket of other major currencies (like the Japanese yen, British pound sterling, Swedish Krona, Euro), Individuals hoping to meet foreign exchange payment obligations, via dollar transactions to countries like Europe, and Japan, would need to pay more dollars to fulfill such transactions. 

Stephen Innes, Chief Global Market Strategist at AxiCorp in a note to Nairametrics, wrote about the present market volatility in the currency market. He said;

“If you are handling the currency hot seat these days, you likely feel tethered to the end of a very reactive Yo-Yo string as currency moves in one session are faded in the next. 

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“Currencies have started the second half of the year, where they left off in the first and outside of the “risk-on risk-off” see-saw currency appetite struggled to find any meaningful catalysts. 

“With G-10 central banks at zero or below, in the absence of any significant monetary policy transmission that leaves currency traders chasing or instead guessing which countries activity data will outperform the others, which is getting enveloped around the dichotomy between current buoyant conditions and subdued future expectations striking both in consumer sentiment and in financial-market indicators.” 

READ MORE: U.S dollar stands firm, foreign exchange traders remain neutral

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However, some global investors and currency traders are predicting futuristic gains for the greenback with the resurgence of the COVID-19 cases globally. There were over 10.6 million cases as of July 2, according to Johns Hopkins University data.

“If we see further spikes in coronavirus cases, I would expect both the dollar and the yen to strengthen against other currencies,” Tohru Sasaki, head of Japan market research at J.P. Morgan, told Reuters.

 

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Patricia
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Currencies

Naira crashes to an all-time low at the black market as liquidity crisis worsens 

The volatility and uncertainty of the forex market seem to persist due to liquidity shortages across markets. 

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Naira remains stable at the black market, Brent crude moves past $40 per barrel

Forex turnover at the Investor and Exporters (I&E) window continued with its downward slide on Wednesday, July 1, 2020, as it dropped by 28% day on day. This is according to data from the FMDQOTC, an exchange where forex is traded by foreign investors and exporters.  

According to the data tracked by Nairametrics, forex turnover fell from $14.37 million on Tuesday, June 30, 2020, to as low as $10.37 million on Wednesday, July 1, 2020, representing a 28% drop on a day-to-day basis. This is a second consecutive day of decline this week and also the lowest turnover recorded in the I&E window since last week.  

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This further reinforces the volatile and uncertain nature of the foreign exchange market with trading volumes apparently irregular and piling pressure on the exchange rate at the NAFEX market and by extension the parallel market.   

The volatility and uncertainty of the forex market seem to persist due to liquidity shortages across markets.  Liquidity remains quite tight in the foreign exchange market, with the average turnover in the I&E market significantly down to about $45.5 million in the month of May compared to $297.5 million that was recorded in January.  

As we have so often reported, accumulated demand for forex in the market is thought to range between $1.5 and $5 billion depending on which analyst you are speaking to. Forex shortages have persisted since the crash in oil prices coincided with the global lockdown due to COVID-19. The rise in demand and contrasting drop in supply has called for another round of devaluation, which the CBN has insisted it has plans to implement. A devaluation last occurred in March. The activities of the speculators seem to have continued unabated.  

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Speculators have thus patronized the parallel market, otherwise known as the black market, thereby widening the gap between it and the I&E window. The CBN maintains that the perceived demand cannot be substantiated as the lockdown induced by the COVID-19 pandemic suggest demand should be low due to travel restrictions and drop-in economic activities.  

The further decline in liquidity could further fuel speculations in the black market where the exchange rate has traded at a premium of N60+ over the last few weeks. The CBN claims most of the demand being cited is not represented by any official documentation and that it has informed foreign investors with genuine forex demand to be “patient” and that they will get their forex. 

Exchange rate   

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In related news, the exchange rate at the I&E remained stable on Wednesday, closing at N386.50 to a dollar, which was the same rate that was recorded on Tuesday, June 30. The opening indicative rate was N387.08to a dollar on Wednesday. This represents a loss of 2 kobo when compared to the N387.10opening rate recorded on Tuesday.  

At the black market where forex is traded unofficially, the naira depreciated further by N2 to a dollar to close at an all time low of N462 to a dollar on Wednesday, as against the N460 to a dollar on Tuesday, the lowest in almost a year. The exchange rate at the beginning of the week was N460 to a dollar.By crossing N460, the exchange rate has broken a psychological ceiling going past N460 for the first time ever.  

Nigeria continues to maintain multiple exchange rates comprising the CBN official rate, the BDC rates, and the NAFEX (I&E window). Nairametrics reported last week that the government is mulling unifying the multiple exchange rates in a bid to increase the amount available for state governments to share.  

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The depreciation of the Naira in the black market can be attributed to the shortage of dollar supply which is outweighed by demand as that puts further pressure on the forex market. The negative impact of the coronavirus pandemic on global oil prices has constrained the CBN’s capacity to intervene satisfactorily in the foreign exchange market as dollar inflow has slumped. 

The forex scarcity and drop in revenue puts pressure on the value on the naira despite CBN’s effort to maintain stability across the forex segments. The CBN is expected to continue with its intervention in the foreign exchange market to ensure market stability. 

 

Patricia
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Currencies

Digitization of the U.S Dollar faces U.S Senate hearing

Member of the Financial Services Committee asked to know what digital dollars had to do with financial inclusion.

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dollar foreign debt, Foreign investors trapped in the debt market as dollar scarcity persists, U.S dollar gains, America sanctions Chinese Airlines from flying into the U.S. , U.S dollar gains, America sanctions Chinese Airlines from flying into the U.S., U.S Dollar Remains Firm, Global Investors Rush Into Safe Haven Assets

The world’s most powerful economy was in the spotlight yesterday, as America’s Senate Banking Committee deliberated on the digital dollar project before a selected audience, and offered solutions on how to upgrade the country’s financial infrastructure.

The U.S banking committee sought counsel from Paxos CEO, Charles Cascarilla, a financial researcher and professor at Duke Nakita Cuttino, and former CFTC Chair, Chris Giancarlo, as witnesses.

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Charles Cascarilla explained in detail how stablecoins operate and their advantages in modern finance. In his words, “Stablecoins address the antiquated plumbing of our financial system.”

READ ALSO: Quick Take: SWOT analysis of Nigeria’s financial sector according to Fitch Solutions

“We need to address the frictions that exist with the payments system now,” Cuttino said. “Of course with innovation there comes the reduced cost.” Given the focus of her research, Cuttino provided the greatest insight on the specific concerns of the unbanked:

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“Any solution should have low transaction costs. In the early days for Bitcoins, the transaction cost was extremely high — and remains extremely high.”

READ MORE: Libra working on multiple versions of digital coins

Top member of the Financial Services Committee, Patrick McHenry, asked Giancarlo to explain what digital dollars had to do with financial inclusion, to which Giancarlo responded: “It’s about on-ramps into the financial system and making them as simple and accessible as possible.”

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Giancarlo’s current champion of the Digital Dollar Project spoke more about the project. He said:

“We began this journey nine months ago, long before COVID was even a concern, long before the insufficiencies of a lot of our payment systems were as broadly noted and acknowledged as they are now. We have said from the beginning and will continue to say, something as important as upgrading the U.S. dollar needs to be done thoughtfully, deliberately.

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“But we need to start now. And if COVID response is the catalyst to starting now, if China’s BSN is the reason to start now, if the Riksbank of Sweden is the reason to start now, if Bitcoin is the reason to start now — all of those pretexts are fine and all of them may appeal to a different constituency, but they say the same thing and that is we’ve got to get started. But we can’t rush it.”

 

Patricia
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