A total of $788 million has been recorded as cumulative turnover in the official Investor & Exporter window, a week after the unification of the exchange rate was announced.
The Central Bank of Nigeria announced a unification of all official exchange rate windows on the 14th of June 2023 leading to a plummeting of the exchange rate.
Since then, the exchange rate at the Investor and Exporter Window has oscillated between N663/$1 to N770/$1 as traders search for price discovery.
While the FMDQ publishes the turnover of forex traded daily, it is not totally representative of the actual amount of forex bought and sold in general. However, it provides a proxy for the level of liquidity in the I&E Window.
In Search of Price Discovery
The exchange rate between the naira and dollar has experienced volatility since its introduction a week ago falling 29% to N664/$1 on the first day.
- It fell further to N702/$1 before closing the week slightly stronger at N664/$1.
- The I& Window closed the Monday at N770.3/$1 and on Tuesday, June 20th at N756.6 continuing with the volatility that we have experienced since the unification started.
- The official exchange rate also achieved parity with the black-market rate for the first time since 2018 when it was around N363/$1.
- The highest daily rate sold at the I&E window is also N790/$1 reported on Monday, June 19th, 2023.
Meanwhile, the exchange rate at the parallel market fell to as low as N780/$1 as black-market traders adjusted their prices to align with the official rate.
However, on the cryptocurrency site Binance where the forex is sold on a peer-to-peer basis, the rate is traded at about N767/$1.
A quick check at the central bank website also indicates the external reserve is around $ 34.49 billion down from $34.65 billion on the day the unification was announced.
Price Discovery: The recent market fluctuations can be attributed to the ongoing process of market discovery.
- The Central Bank of Nigeria’s efforts to enhance transparency and liquidity may have caused exchange rates to fluctuate as market forces adapt to the new policy framework.
- However, this period of adjustment and volatility is anticipated to ultimately result in a more stable and efficient foreign exchange market.
Back story
The Central Bank of Nigeria (CBN) issued a press statement on June 18, 2023, providing further guidance to Deposit Money Banks (DMBs) on the operational changes to the foreign exchange market announced on June 14, 2023.
The guidance includes allowing all visible and invisible transactions to be eligible for the Investors’ and Exporters’ window, granting unrestricted access to funds in ordinary domiciliary accounts, and permitting cash deposits not exceeding $10,000 per day or its equivalent via telegraphic transfer.
In addition, the apex bank also introduced the use of its digital currency otherwise known as the eNaira as a payment option to recipients of diaspora remittances. The apex bank said the move was part of its efforts to liberalize the payout of diaspora remittance.
Despite these initiatives, the exchange rate has continued to experience volatility at the Investor & Exporter window
