The complex documentation process required by banks will make it harder for Nigerians to access foreign exchange.
This is according to the Financial Derivatives Company (FDC), Bi-Monthly Update, Volume 11, Issue 11 Issued on August, 2021. “The cumbersome documentation process required by banks will remain a challenge for the public,” the report said
On July 27, the CBN Governor announced a ban on foreign exchange sales to BDCs during the question-and-answer session of the last monetary policy committee meeting.
According to the report, there was a swift reaction by participants in the market. The report stated, “By the next day, the parallel market rate had plunged to N522/$ and then N525/$ as the markets tried to process the implications of the CBN’s decision on businesses. Since then, the naira has gradually appreciated, to currently trade at N508/$ (August 4). Other market rates have also appreciated. For instance, the IATA rate (the exchange rate used by airlines to issue tickets) moved from N460/$ to N412-N413.”
Parallel market convergence with IE FX window
The report predicted that the parallel market premium would subside, resulting in a convergence of rates around the IEFX window.
“Since the CBN is expected to shift the forex supply previously sold to BDCs to the banks, we expect to see an increase in volume and turnover in the banking segment of the forex market, making dollar sales more accessible to the public. This will lead to an appreciation of the exchange rate for invisibles such as PTA, BTA, tuition etc. Also, the parallel market rate depreciation will continue albeit temporarily, leading to a widening of the forex market premium. However, as the market adjusts to the new forex ban, the spike in the parallel market premium will fizzle out, leading to a convergence of rates around the IEFX window.”
What this means
- The increased currency supply from the CBN will help the banks, resulting in an increase in transactions. The lengthy paperwork procedure needed by banks, on the other hand, will continue to be a barrier for the general public.
- If this challenge is not addressed, Nigerians may find it easier to access foreign exchange through the black market operators, which may disrupt the intent of the CBN policy.