Banks and financial market dealers are waiting to see how the Central Bank of Nigeria’s newly introduced retail foreign exchange auction system, called Retail Dutch Auction System, will affect the economy.

The CBN had on Wednesday replaced the wholesale foreign exchange auction method, called Wholesale Dutch Auction System, with the RDAS, as part of measures to curb money laundering, which it said was weakening the naira and could push up inflation.

“Available statistics indicate that Nigeria has become the largest importer of United States dollars,” the regulator said last Friday, explaining that its twice-weekly wholesale foreign exchange auction would be replaced with a retail version requiring dealers to reveal the identities of their buyers.

Operators in the foreign exchange market lauded the policy on Wednesday and said they were eagerly waiting to see how the “RDAS will play out in the financial market and the economy at large.”

The President, Financial Market Dealers Association, Mr. Sola Adegbesan, said the RDAS would help the CBN to identify possible leakages in the financial system and consequently plug them to improve the economy.

He said, “It is the right thing. Banks are saying the amount of dollars demanded at the WDAS is genuine, but the CBN is saying we are now going to start selling dollars based on the papers presented to us.

“In other words, instead of banks coming with an estimated amount of dollars they require, the CBN is saying, ‘apply to us based on the name of individuals who have applied for the foreign exchange through you.’

“CBN may even go to the extent of going to those companies to verify and seek to know why they are demanding such amount. Well, no one is sure how the policy will play but we are all looking forward to seeing how it will play out.”

The Head, Research and Intelligence, BGL Securities, Mr. Femi Ademola, said the purpose of the policy was to help the CBN block possible leakages, which have been putting pressure on the naira.

He said the CBN wanted to reduce the amount of dollars in circulation and, as such, had directed most foreign exchange payments to be made via cards, electronic transfers and other cash-less means.

Ademola, however, said the CBN must bear in mind that there were periods in the country when demand for dollars was usually high.

Source: Punch (by oyetunji Abioye)