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Currencies

Exchange rate stabilises at N410/$1 as oil price rallies above $65 per barrel

The exchange rate between the Naira and the US Dollar closed at N410/$1 at the Investors and Exporters window on Monday as oil prices hit $65.24 per barrel

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Naira falls across forex markets as businesses resume after public holidays

Monday 22nd February 2021: The exchange rate between the Naira and the US Dollar closed at N410/$1 at the Investors and Exporters window, where forex is traded officially.

Naira remained stable on the NAFEX window to stand at N470 to a dollar on Monday, which is the same rate it closed on the previous trading day.

Also, Naira depreciated on the parallel market to close at N480/$1 on Monday, 22nd February 2021. This represents a N2 drop when compared to N478/$1 recorded on Friday, 19th February 2021.

Brent Crude oil price hit a record high as it closed at $65.24 per barrel as Goldman Sach’s projection indicates bullish trades in Q2 2020.

Trading at the official NAFEX window

The exchange rate between the Naira and Dollar at the Investors and Exporters (I&E) window maintained the same rate as recorded on Friday last week to close at N410/$1 on Monday, 22nd February 2021.

  • The opening indicative rate closed at N408.04 to a dollar on Monday. This represents a 43 kobo drop when compared to N407.61 to a dollar that was recorded the previous trading day on Friday, February 19, 2021.
  • An exchange rate of N412 to a dollar was the highest rate during intra-day trading before it closed at N410/$1. It also sold for as low as N389.75/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window declined by 20.8% on Monday, February 22, 2021.
  • According to the data tracked by Nairametrics from FMDQ, forex turnover decreased from $66.41 million recorded on Friday, February 19, 2021, to $52.58 million on Monday, February 22, 2021.

READ: Industrial index down by 5.7%, as shares of BUA, Lafarge, Dangote, others decline

Cryptocurrency Watch

  • The largest cryptocurrency in the world, Bitcoin dipped by 4.76% on Monday to stand $54,753.48 as of 11:10pm.
  • This came after the world’s richest man, Elon Musk disclosed that the price of bitcoin and Ethereum seems to be high.
  • Meanwhile, three days ago, the world’s most demanded crypto-asset breached the $1 trillion market capitalisation to become the sixth most-valuable asset worldwide.
  • It is worth noting that, following the directive of the CBN prohibiting regulated financial institutions from dealing with Cryptos, Nigerians have moved towards peer-to-peer transactions trading directly without a third party.
  • According to a recent study seen by Nairametrics, the use of Bitcoin for peer-to-peer lending in Nigeria surged by 16% since the CBN directive took effect about 18 days ago

Crude oil prices top $64 per barrel

Crude oil prices picked up again on Monday as Brent Crude gained an additional $2.33 to close at $65.24 per barrel.

  • The increase represents a 3.7% increase when compared to $62.91 per barrel recorded on the previous trading day.
  • The price increase came shortly after Goldman Sach forecasted that oil prices would climb around $70 per barrel in the second quarter of the year.
  • It could also be attributed to the realization that U.S oil production and refineries will take a bit of time to resume their normal level of output after the Texas Freeze knocked out oil refineries.
  • The oil market rallied despite the news that Saudi Arabia and Russia might be on the verge of a disagreement again over output agreement, which the group will deliberate on in March.
  • Meanwhile, Brent closed at $65.24 (+3.7%), WTI closed at $61.49 (+3.8%), Bonny Light at $62.09 (-1.16%), and Natural Gas closed at $2.946 (-0.24%).

READ: Oil traders go wary on energy demand, mutant strains of COVID-19

Declining external reserve despite bullish oil prices

Nigeria’s external reserve dipped further on Thursday, 18th February 2021, to stand at $35.47 billion.

  • This represents a decline of 0.15% compared to $35.53 billion recorded as of Wednesday, 17th February 2021.
  • Despite rallying oil prices, Nigeria’s external reserve has recorded a steady decline since the 25th of January 2021, losing a sum of $958.1 million in less than a month.
  • It is worth noting that despite the significant increase recorded earlier in January, the current reserve positive is only $99.9 million more than $35.37 billion recorded as of 31st December 2020.

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Currencies

CBN explains why it introduced cash for dollar scheme

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Banks' stakeholders express 4 main concerns bothering the sector right now, CBN, MARKET UPDATE: CBN’s historic agriculture lending; Is it yielding the desired results? 

In a series of tweets on the evening of the 6th of March, the Twitter handle of the Central Bank of Nigeria explained why it offered the  Naira4Dollar Scheme in favour of diaspora Nigerians who are seeking to inflow money into Nigeria.

We had a fair look at the tweets that we have annotated for our readers. Here it goes.

1. Consistent with the global trend, Nigeria aspires to ensure that remittance flows and diaspora investments become a significant source of external financing.

What this means: The CBN is essentially admitting that foreign remittances (from Nigerians abroad) is important to boosting dollar liquidity. 

READ: CBN issues modalities for payout of diaspora remittances in dollars

2. In an effort to reduce the cost burden of remitting funds to Nigeria by working Nigerians in the Diaspora, the #CBN has introduced a rebate of N5 for every $1 of fund remitted to Nigeria, through IMTOs licensed by the CBN. The Scheme will take effect on the 8th of March 2021.

What this means: The target of the CBN are Nigerians in the diaspora who they want to offer N5 for every $1 remitted to Nigeria. While the target is diaspora remittances, the people who will benefit are their family, friends, or loved ones who withdraw the money from the bank. 

3. We believe this new measure will help to make the process of sending remittances through formal bank channels cheaper and more convenient for Nigerians in the diaspora. #Emefiele

What this means: They opine that sending remittances through Nigerian banks ends up being cheaper and convenient. In reality, they appear to be targeting other channels of remitting money to Nigerians. For example, rather than pay excess transfer charges, you transfer the money through a Nigerian bank and then get an extra N5 for each dollar. However, they will have to contend with thousands of Nigerians who simply embark on peer-to-peer exchanges. Nigerians who live in the US or Canada often prefer to sell the dollars to Nigerian living in Nigeria but who need dollars abroad.

READ: The Nigerian economy is increasingly dollarized but there is a way-out

4. New FX policy will create an easier, more flexible, and more transparent, system of remittance administration, it will greatly enhance the benefits of diaspora remittances in supporting investments and growth in Nigeria. #Emefiele

What this means: This is essentially a promo pitch. It is all about competing for your remittances. They want you to route through the bank rather than the black market.

5. Policy on the administration of remittance flows is aimed at increasing the transparency of remittance inflows, reducing rent-seeking activities, and providing Nigerians in the diaspora with cheaper and more convenient ways of sending remittances to Nigeria. #Emefiele.

What this means: This is a veiled attack on other competing and probably more beneficial ways of remitting money to Nigeria. Increasing Transparecy is basically allowing the CBN to track dollar inflows from Diaspora Nigerians and see which sectors it is flowing into.

READ: New CBN Circular: CBN confirms only Banks can pay IMTO dollars

6. PwC forecasts suggest that Nigeria’s remittance flows could reach US$34.89 billion by 2023. But this can only be accomplished if remittance infrastructure improves and if the right policies are put in place.

What this means: Interesting to note that the PWC forecast quoted by the CBN is based on data obtained from the World Bank and IMF, who in turn also base their data from the CBN and other sources. 

7. The use of reimbursements of remittance fees has been critical in supporting improved inflow of remittances to countries in South Asia and in improving their balance of payments position following the COVID-19 pandemic.

READ: CBN expects $24bn annual diaspora remittances – Emefiele

What this means: The CBN appears to have modeled this new scheme on similar policies in Asian countries. Bangladesh also has a similar scheme.

 

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Currencies

CBN’s Naira4Dollar Scheme may have been copied from Bangladesh

Bangladeshis launched a similar cash incentive for forex remitted into their country by the Diaspora.

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CBN forex restrictions on food itemsCBN approves new cheque standard for banks

It appears Nigeria’s CBN may have copied its new Naira4Dollar scheme idea from South Asian country Bangladesh who have been running a similar policy since 2019.

According to our reports, the Bangladesh government offers its citizens a 2% cash incentive on money remitted by its citizens in the diaspora. They claim this is geared towards curbing “overbearing costs of increased expenses in sending remittances and to encourage bringing in remittance through legitimate channel.”

This sounds very much like what Nigeria’s central bank is trying to do.

“In an effort to reduce the cost burden of remitting funds to Nigeria by working Nigerians in the Diaspora, the #CBN has introduced a rebate of N5 for every $1 of fund remitted to Nigeria, through IMTOs licensed by the CBN. The Scheme will take effect on the 8th of March 2021. We believe this new measure will help to make the process of sending remittance through formal bank channels cheaper and more convenient for Nigerians in the diaspora” CBN

READ: Total credit to the economy rose to N19.54trillion – CBN Governor

How the Bangladesh Model works

  • Beneficiaries will receive a direct 2% incentive for transfers of up to USD 1500 without any verification. However, for amounts exceeding USD 1500, they will have to show valid supporting documents; to prevent the misuse of money.
  • If you are a Bangladeshi national sending money back home, the government will add 2% to your transfer – the incentive is 2% of the sent value and will be paid in BDT.
  • For higher values, beneficiaries will need to show the remitter’s passport, an appointment letter from the employer, and a certification from the Bureau of Manpower, Employment, and Training (BMET). In the case of businesspersons remitting amounts exceeding USD 1500, their beneficiaries need to produce a copy of the business license.
  • If beneficiaries fail to submit the required documents instantly they are given a period of five days to submit the documents, after which the beneficiary will be entitled to receive the cash incentive.
  • If remitters or beneficiaries are found violating these rules, they will not qualify to receive any incentives in the future.
  • Source: XpressMoney  Also read this article on WorldRemit to get how it works.

READ: Bangladesh calls for collaboration with Nigeria on textile  

Nigeria’s CBN is yet to publish guidelines explaining how its own policy will be governed and if there are any terms and conditions as detailed by Bangladeshis. However, Nairametrics understands the N5 will be paid in cash to beneficiaries of the remittance or credited to their bank account.

Has it worked for Bangladesh?

In a report credited to New China News Agency, the Bangladesh Bank statistics claimes Bangladeshis in the diaspora remitted $16.69 billion in the first 8 months of its fiscal year (July 2020 – June 2021) a 33% increase year on year.

  • Bangladesh had received $12.5 billion in the first 8 months of the fiscal year July 2019-June 2020).
  • The report also cited Bangladesh Bank (BB) statistics data which revealed the remittance in February alone stood at 1.78 billion U.S. dollars up 22% when compared to the year before.
  • This amount is up by over 22 percent from 1.45 billion U.S. dollars received in the same month of the 2019-20 fiscal year.
  • Bangladesh’s remittances hit an all-time high of 18.20 billion U.S. dollars in the last 2019-20 fiscal year.
  • The report also claims remittance has been steadily rising since the announcement of a 2.0-percent incentive on remittance receipts in June 2019 to encourage the expatriate Bangladeshis to send home more money through formal channels.

READ: Why external reserves is falling despite a rise in oil prices

Bottom Line

There is absolutely nothing wrong with copying what has worked anywhere else especially if it is for the greater good. However, it is unclear if Bangladesh’s challenges with the exchange rate are similar to ours.

  • For example, Nigeria has a thriving black market for trading currencies that have better price discovery when compared to the official market. Whether this policy will work will depend on how lucrative Nigerians in the diaspora find the incentive.

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