Worried by a spike in the Naira exchange rate, the Association of Bureau De Change Operators of Nigeria (ABCON), Tuesday pledged to work with the Central Bank of Nigeria (CBN) to end an emerging era of multiple exchange rates in the FOREIGN EXCHANGE market.
The decision came as the retail forex traders lamented that the variegated rates obtainable in various segments of the market were gradually killing the nation’s currency, adopting a single rate regime of N399 as preferred reference rate to the dollar. They argued the option would help the country reduce the gap between the official interbank rate and the parallel market.
“The association believes that by working closely with the CBN, investors’ confidence will be restored to the market, which will translate to bridging of the gap between the parallel and the official WINDOW,” he said.
The Nigerian authorities have been pressing retail operators to narrow the wide gap between naira’s official rate – currently at N305 to the dollar – and a parallel rate of over N490 in recent days.
But the BDCs President, Aminu Gwadabe, who is due to meet central bank officials next Tuesday, said his members had agreed to set a weekly reference rate to improve liquidity and help rebuild investors’ confidence on the economy.
“Once liquidity improves, the wide margin between the parallel and official market rates will be bridged,” Gwadabe told reporters at a meeting in Lagos.
The ABCON boss who said naira’s outlook was “promising” with the strong rally in crude prices, lamented that liquidity constraint in the FOREIGN EXCHANGE MARKET was caused by low oil income, which currently accounts for about 70 per cent of government revenues.
Although foreign currency retailers account for less than 5 per cent of total foreign currency trading in Nigeria, poor liquidity at the official market arising from low oil revenues had constrained supply to it from CBN, leaving them only with inflows from International Money Transfer Organisations (IMTOs).
Gwadabe said the body was seeking approval from the central bank to access dollars from export proceeds to grow liquidity adding it had recommended suspension of some of its members for failing to submit documents on FOREX purchases from money transfer agents. The naira lost a third of its official value against the dollar in 2016.
Meanwhile, the association has appealed to Nigerians to adopt a single foreign exchange rate system in their transactions, adding that quoting rate at the parallel market as reference rate was misleading since they could get better offer at the BDC window.
“We urge the regulators and the government to harmonise the multiple exchange rates and disregard the rates in the parallel market. The parallel market rate is small in volume, cash base and not recognised by extant laws,’’ Gwadabe said.
He noted that Egypt and a few other countries had developed the single exchange system, which helped them reduce volatility and speculation in their markets, while recognising the daunting task in switching to a “complete and single determined market rate.”
According to him, the foreign exchange market is volatile subject to the whims and caprices of speculators whose stock in trade is manipulation.