Currencies
Naira crashes to N500/$1 at black market as CBN adjusts exchange rates
The Naira crashed again to an over 3-year low against the dollar, closing at N500/$1 at the parallel market.
Forex turnover dropped by 52.2%, as the Naira’s exchange rate at the NAFEX window appreciated against the dollar to close at N390.25/$1 during intra-day trading on Friday, November 27.
However, the Naira crashed again to an over 3-year low against the dollar, closing at N500/$1 at the parallel market on Friday, November 27, 2020, as a recent circular seen by Nairametrics suggests that the CBN has devalued the exchange rate between the dollar and the Naira sold to the BDCs from N384/$1 to N390/$1.
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This is as the Naira hit a record low of N600/$1 on the futures for 5-year settlement on Friday, as the severity of forex scarcity becomes more intense, according to a report from Reuters.
Parallel market: According to information from Abokifx – a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N500/$1 on Friday.
(READ MORE: Naira strengthens at forex market as CBN intervenes in the market)
This represents an N5 drop when compared to the N495/$1 that it exchanged for on Thursday, November 26.
- The local currency had strengthened by about 7.8% within one week in September at the black market, as the CBN introduced some measures targeted at exporters and importers.
- This is to boost the supply of dollars in the foreign exchange market and reduce the high demand for forex by traders.
- However, the gains appear to have been completely erased with the recent crash of the exchange rate.
- The CBN has sold over $1 billion to BDCs since they resumed forex sales on Monday, September 7, 2020.
- This was expected to inject more liquidity into the retail end of the foreign exchange market and discourage hoarding and speculation.
- However, the exchange rate against the dollar has remained volatile after the initial gains made, following the CBN’s resumption of sales of dollars to the BDCs.
- Despite the CBN intervention, the huge demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.
(READ MORE: Naira stabilizes at black market as CBN continues its intervention in forex market)
NAFEX: The Naira appreciated against the dollar at the Investors and Exporters (I&E) window on Friday, closing at N390.25/$1.
- This represents an N3 gain when compared to the N393.25/$1 that it exchanged for on Thursday, November 26.
- The opening indicative rate was N388.70 to a dollar on Friday. This represents a 55 Kobo drop when compared to the N388.15 that was recorded on Thursday.
- The N400.37 to a dollar was the highest rate during intra-day trading before, it still closed at N390.25 to a dollar. It also sold for as low as N383/$1 during intra-day trading.
- Forex turnover: Forex turnover at the Investor and Exporters (I&E) window declined by 52.2% on Friday, November 28, 2020.
- According to the data tracked by Nairametrics from FMDQ, forex turnover dropped from $210.25 million on Thursday, November 26, 2020, to $100.52 million on Friday, November 27, 2020.
- The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.
- The sharp increase in dollar supply after the previous trading day’s drop reinforces the volatility of the foreign exchange market. The supply of dollars has been on a decline for months due to low oil prices and the absence of foreign capital inflow into the country.
- The average daily forex sale for last week was about $169.93 million, which represents a huge increase from the $34.5 million that was recorded the previous week.
- Total forex trading at the NAFEX window in the month of September was about $1.98 billion, compared to $843.97 million in August.
- The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand, and a shaky economy that has been hit by the coronavirus pandemic.
- Some members of MPC of the CBN have expressed serious concerns over the increasing demand pressure in the country’s foreign exchange market. This is an obligation of manufacturers to their foreign suppliers that continues to increase in the face of dollar shortages.
Explore Data on the Nairametrics Research Website
Currencies
Naira falls across forex markets as CBN moves against IMTOs
The exchange rate at the black market where forex traded unofficially depreciated at N477/$1.
On January 22, 2021, the exchange rate between the naira and the dollar depreciated closing at N394.17/$1 at the NAFEX (I&E Window) where forex is traded officially.
Forex turnover, however, dropped by about 42.2% as pressure on the foreign exchange market continues.
The Central Bank of Nigeria (CBN) in a new circular, read the riot act to the International Money Transfer Operators (IMTOs) as they have threatened to sanction some of them who still facilitate diaspora remittances in naira, contrary to its earlier directive that it must be in foreign currency.
READ: Nigeria faces prolonged exchange rate crisis as oil prices remain stuck at $40
Also, the exchange rate at the black market where forex traded unofficially depreciated at N477/$1. The exchange rate at the parallel market closed at N475/$1 on the previous trading day of January 21, 2021, representing a N2 drop.
The exchange rate disparity between the parallel market and the official market is about N82.83, representing a 17.36% devaluation differential.
READ: CBN to prevent exporters with unrepatriated export proceeds from banking services
The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Friday, closing at N394.17/$1. This represents a 17 kobo drop when compared to the N394/$1 that it closed on the previous trading day.
- The opening indicative rate was N393.15 to a dollar on Friday, this represents a N1.01 gain when compared with the N394.16 to a dollar that was recorded on Thursday, January 21, 2021.
- The N395 to a dollar was the highest rate during intra-day trading before it closed at N394.17 to a dollar. It also sold for as low as N390/$1 during intra-day trading.
- Forex turnover at the Investor and Exporters (I&E) window dropped by 42.2% on Friday, January 22, 2021.
- According to the data tracked by Nairametrics from FMDQ, forex turnover declined from $77.04 million on Thursday, January 21, 2021, to $44.51 million on Friday, January 22, 2021.
- The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand, and a shaky economy that has been hit by the coronavirus pandemic.
- There are fears that the exchange rate at the black market might be under pressure in the coming weeks as importers scramble for dollars to meet their demands.
READ: A summer of higher food prices, limited room for monetary policy
Oil price steady rise
Brent crude oil price is at about $55.34 per barrel as of Monday morning, as it moves towards the $60 mark, a strong sign that global demand could sustain price increases in 2021.
- This appears as a boost to Nigeria as the country’s crude oil price benchmark for 2020 was $40 while it projected an oil production output of 1.8 million barrels per day.
- Nigeria has a production capacity of 2.5 million barrels per day but is subject to OPEC’s crude oil production cuts, which are expected to help sustain higher oil prices.
- The higher oil prices and steady production output have positively impacted Nigeria’s external reserves, rising sharply to $36.304 million according to central bank data dated January 14, 2020.
- This is the highest level since July 2020 and a sign that higher oil prices and steady output levels may be contributing significantly to Nigeria’s foreign exchange position.
READ: A Joe Biden presidency and its impact on Nigeria’s oil
Nigeria rising external reserves
- The external reserve has risen to $36.508 billion as of January 21, 2021.
- Nairametrics had earlier reported that the government may have taken receipt of the $1-1.5 billion World Bank loan.
- The external reserves have increased by $1.135 billion since December 31, 2020, when it closed the year at $35.3 billion.
- Nigeria also needs the external reserves to hit $40 billion if it is to adequately meet some of the pent up demand that has piled up since 2020 when oil prices crashed and the pandemic caused major economic lockdowns.
Currencies
CBN to prevent exporters with unrepatriated export proceeds from banking services
From January 31, 2021, the CBN will bar exporters who fail to repatriate export proceeds from accessing banking services.
The Central Bank of Nigeria (CBN) has announced the prohibition of all Nigerian exporters who are yet to repatriate their export proceeds, from banking services effective from January 31, 2021.
The apex bank has a standing policy that instructs exporters to repatriate exports within 90 days for oil and gas and 180 days for non-oil exports constitute a breach of the extant regulation.
In a letter issued by one of the commercial banks to its exporters, and seen by Nairametrics, it cited the CBN’s new circular stating that it will bar exporters who do not repatriate from accessing banking services.
See excerpt of the CBN circular barring exporters from accessing banking services.
“Please be informed that the Central Bank of Nigeria (CBN) through its circular referenced TED/EXP/CON?NEX/01/001 dated 13th January 2021 has instructed that all exporters with unrepatriated export proceeds before 31st January 2021 should be barred from accessing all banking services.”
In lieu of this, all concerned exporters are urged to comply with the directive before the specified date.
Why this circular?
Analysts believe that the directive is part of a monetary control mechanism by policymakers to maintain relative stability in the exchange rate, especially after the pandemic created a wide disparity between the official exchange and the parallel market rates, eliminating incidences of over-invoicing, transfer pricing, double handling charges, etc.
- By repatriating export proceeds via the NAFEX (Investor and Exporter window) the central bank believes this will improve liquidity in the official market and perhaps strengthen the naira at the black market where wired transfers often cost a premium of N5-N10 over the street exchange rate of N475/$1.
- Most export proceeds find their way to the parallel market where exporters can exchange for higher naira value-boosting their gains on foreign currency conversions.
- It is to be seen if exporters will comply with this directive or seek other means of avoiding the hammer of the exporters. Most exporters already find a way to avoid these hammers by opening foreign bank accounts where most of the export proceeds are warehoused and then sold at the black market.
- Some rely on complex intercompany transactions to avoid repatriating the forex through the NAFEX window
What you should know
- According to Bloomberg sources, the new directive applies to exports up until June last year.
- In a bid to ensure prudent use of foreign exchange resources, the Central Bank of Nigeria had earlier instructed authorised dealers and exporters to only open forms M for letters of credit, bills for collection, and other forms of payment
Currencies
CBN issues modalities for payout of diaspora remittances in dollars
The new circular explains who diaspora remittances are to be paid to beneficiaries in Nigeria only in foreign currency and not naira.
The Central Bank of Nigeria (CBN) has issued a circular setting out the Modalities for Payout of Diaspora Remittances.
The apex bank has frowned at activities of some International Money Transfer Operators (IMTOs) and unlicensed companies who continue to facilitate diaspora remittances into the country in Naira instead of dollars.
The apex bank’s reaction follows the contravention of its earlier directive that all diaspora remittances must be paid to the beneficiaries in dollars.
This disclosure was contained in a circular titled, ‘Modalities for Payout of Diaspora Remittances’, issued by the CBN on Friday, January 22, 2021, and signed by its Director Trade and Exchange Department, Dr O.S. Nnaji.
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What the CBN is saying
The CBN in its circular said, ‘’Further to our circular titled ‘Receipt of Diaspora Remittances: Additional Operational Guidelines’, it has come to our notice that some IMTOs and unlicensed companies continue to facilitate diaspora remittances into the country in Naira, “in clear contravention of the Central Bank of Nigeria directive that all remittances be paid to beneficiaries in dollars.’’
READ: More pressure on the naira as Diaspora remittances to drop by 20%
For the avoidance of doubt, the Central Bank of Nigeria further clarifies as follows;
- Only licensed IMTOs are permitted to carry on the business of facilitating diaspora remittances into Nigeria;
- All diaspora remittances must be received by beneficiaries in foreign currency only (cash and /or transfers to domiciliary accounts or recipients);
- IMTOs are not permitted, under any circumstances, to disburse diaspora remittances in Naira (either in cash or by electronic transfers), be it through remittance settlement accounts (which had been earlier directed to be closed), third party accounts or via any other payment platforms within and/or around the Nigerian financial system.’’
READ: Nigeria’s forex devaluation timeline – 2020
The apex bank in the circular said that the measures were intended to promote transparency, grow diaspora remittances and significantly improve foreign exchange inflows into Nigeria.
The CBN warned that strict sanctions, including withdrawal of operating licenses, shall be imposed on any individuals and/or institutions found to be aiding, abetting or directly contravening these guidelines.
It went further to say that it shall not hesitate to authorize the closure of the accounts of unlicensed operators in Nigerian banks, including being barred from accessing banking services in Nigeria.
It promised continued monitoring of developments in this regard, adding that it would also issue further guidance as appropriate.
READ: Continuous increase in inflation rate may weaken economy – CBN report
What this means
With the insistence of the apex bank on its earlier directive, it means that Nigerians living in the diaspora can transfer foreign currency to their relatives and loved ones in the country, who in turn will withdraw the money in dollar cash and sell it anywhere they so desire in exchange for naira.
It means they can for instance receive foreign transfers such as Western Union or Moneygram, withdraw it in dollars and then sell at the black market rate or anywhere else they want to. This they believe will help to stabilize the exchange rate and discourage hoarding.
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What you should know
- It can be recalled that the CBN, had in November 2020, amended the procedure for the receipt of diaspora remittances and insisted that it must be paid in dollars to the beneficiaries, in an apparent and frantic attempt to improve liquidity in the forex market and reduce the disparity between the black market and the official window.
- Also in an additional guideline for diaspora remittances, the CBN barred IMTOs from sending money to Mobile Money Operators and also stopped the integration of payment services providers to IMTO accounts. It also stopped switches and processors from getting involved in foreign remittances.
William Michael
November 30, 2020 at 7:27 pm
May we never reach a time where will have $1 equals to N1,000. That will be the death of Naira. Not just the death but obituary and funeral of Naira. Things are now so expensive that even Toyoya Camry 2010 that used to be N2.5million is now N3.5million. Additional N1million to its price.
The depreciation of Naira affects all cost of living and everything that is connected to commerce and no commerce activities.
However with this increase in prices of commodity and with the way Naira is depreciating, Salaries in Nigeria remain the same and at worst, companies are cutting down expenses and laying off their staffs as things get harder. It is very clear that hardship is gripping this nation called Nigeria. This level of hardship can result to depression and possible death by suicide.