The Governor of Central Bank of Nigeria (CBN), Godwin Emefiele, railed off against the parallel market alleging that it is a tainted market where illegal foreign exchange transactions, which include sourcing of forex cash for purposes of offering bribes and other corrupt activities, take place.
While disclosing that the parallel market is no more than 5% of the forex market, Emefiele said that Nigeria’s official exchange rate should not be determined by the rate in that market where the naira has weakened to a 3-month low.
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This was disclosed by Emefiele, on Tuesday, November 24, 2020, during a virtual briefing in Abuja after the Monetary Policy Committee meeting.
The CBN Governor expressed his disappointment and frustration at the rhetoric of some analysts who say that the parallel market rate of N480/$1 is the exchange rate.
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What he said
Emefiele, in his briefing, said, “And indeed I heard some analysts talking about the parallel market saying that exchange rate is at N480. I want to say this, that it is unfortunate and really unfair that even analysts who are supposed to know will play with numbers and begin to determine the exchange rate of our currency using parallel market rate.
“For the information of everybody, parallel market as far as we know it and the data that we have, is a shallow market in Nigeria with no more than 5% of market share. Parallel market and quote me is a tainted market in Nigeria, where people who desire to deal in illegal foreign exchange transactions including sourcing of FX cash for purposes of offering bribes, corruption, that is where they deal.
“And that is where people who are supposed to understand the implication of these on the economic activities on our country begin to go to television and begin to say our exchange rate is N480. This very unfortunate,” he added.
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What we know
Whilst forex is obviously a conduit for illegal transactions, it cannot be attributed alone to the parallel market. Illegal transactions disguised as legal also take place in the official market.
Suffice to add that the central bank shares most of the blame in the huge exchange rate disparity between the official and parallel market rates due to some of its policies. For example, there are restrictions on third party transfer of forex from one account to another while importers have limited room to source forex.
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Forex illiquidity in the official market also means most businesses have no option but to source forex in the parallel market where it cost more. Not doing so means they won’t be able to meet their obligations such as servicing loans in forex, paying suppliers and honouring technical contracts.
Disparity widens
According to data from abokifx.com, the naira exchange stood at N483/$1 on Tuesday at the parallel market, whereas it closed at N385.50/$1 on Tuesday at the investors and exporters window, according to data from FMDQ. The official CBN rate still remains N379/$1.
The exchange rate disparity keeps widening as demand pressure increases at the parallel market on account of low dollar supply.
Forex scarcity and some of CBN’s policies like those on export proceeds, barring of third parties from buying forex routed through Form M and others, have seen importers and manufacturers move to the parallel market to meet part of their demands.
Explore Data on the Nairametrics Research Website
Governor Emefiele speaks on the FX parallel market @ the 276th MPC press briefing held 24th November, 2020. pic.twitter.com/NcO84JXo9x
— Central Bank of Nigeria (@cenbank) November 25, 2020
Certainly our so called policy makers do not even understand the financial system. We all know the bureaucracy and nepotism involved in sourcing for foreign exchange in Nigeria.
However, the current exchange rate in the parallel market is a true reflection of how low our Naira has crashed.
It’s common sense: take the oil sector for an example where we generate about 80% of our revenue in foreign exchange. But now the sum we generate from thesame sector has dropped. Then what does the law of demand and supply says…
The CBN Gov is yarning RUBBISH!
A free market is characterised by free exchange among buyers and sellers, and (for better or worse) the so-called parallel market for forex in Nigeria is the closest approximation to a free market.
If the CBN governor is serious then why the black market?
He has no sense…even most banks operate at the parallel market rate, when you want to make international payment.