There are mounting concerns that the widening disparity between the dollar and naira may be triggering a new wave of forex round-tripping.
Roundtripping involves procuring foreign exchange through official channels and subsequently selling it on the black market at a more favourable rate, resulting in profitable arbitrage.
The exchange rate between the naira and the dollar has depreciated past N1000/$1 in the last week as rising demand continues to surpass supply.
This unsettling trend has brought to the forefront concerns over a potential surge in currency roundtripping activities, as sources indicate some forex buyers may be exploiting the Interbank Foreign Exchange (I&E) window for personal gains, igniting fears of dire economic consequences.
Unification of Forex Markets: Initial Promise and Current Realities
The move to unify the I&E and black-market windows on June 14, 2023, through the Central Bank of Nigeria’s managed float system was initially hailed as a long-awaited solution to the persistent exchange rate gap.
However, beyond the initial honeymoon phase, market dynamics have held sway as the black-market rate continues to widen to around 20% of the official rate after a temporary convergence in June.
Currently, the black-market exchange rate is going for N1,000/$1 compared to the official rate of N770/1$ suggesting a wide N230/$1 disparity.
Amidst this backdrop, suspicions are growing that a segment of customers may be taking advantage of the I&E window for roundtripping activities.
Sources within the financial sector who spoke to Nairametrics underscored the potential vulnerability the wide gap poses for forex stability in the country, suggesting that forex roundtripping could well be taking place.
One of our sources suggests that currency roundtripping may be a significant contributor to the existing market distortions, further exacerbating the scarcity of the dollar and the escalating Naira-to-Dollar rate witnessed in the FX market.
This scarcity, in turn, poses challenges for legitimate businesses seeking access to foreign exchange for essential transactions.
When asked to provide proof, none of the sources provided any evidence maintaining, however, that this was happening.
Wide-Ranging Implications on the Economy
The ripple effects of these alleged roundtripping activities extend across various sectors of the economy, including manufacturing and importation.
The volatile exchange rate environment introduces uncertainty, rendering effective planning difficult and causing disruptions throughout the supply chain.
Some of the sources who spoke to Nairametrics also called on the government authorities and financial regulators to maintain a vigilant watch over the situation and impose necessary sanctions on speculators involved in illicit roundtripping.
- “With the resumption of the Acting CBN Governor, Mr. Yemi Cardos, urgent oversight and surveillance of the forex market are imperative” one source suggested.
Additionally, there is a pressing need to increase penalties for those found engaged in such activities, as he passes through the Senate confirmation hearing today.
If currency round tripping was occurring on a large scale as suggested in this write up – the black market should have more liquidity?
And where is the FX demand for school fees / medicals / legitimate demand / SME’s supposed to go to?
Nigeria is destined to be great and a fertile land like ours ought have any business with poverty, however, leadership by example is lacking and many people want to be rich overnight without working for it over time and most don’t mind the consequences. I am of the opinion that once, we have real leadership that can lead by example and not just vows, we would make sustainable progress. It’s not late to begin to change course but our leaders must lead with sincerity of purpose, then the followers will love or fear them for actions and not words. Nigeria ought to be great and will be some day. It takes care and loyalty!