By Yakubu LAAH InvestAdvocate
Lagos (INVESTADVOCATE)-The Central Bank of Nigeria (CBN) on Wednesday scrapped its biweekly currency auctions on Wednesday and said it would sell dollars only at N198 revealing an actual devaluation of the currency.
A Reuters report affirmed that FMDQ, a group comprising Nigeria’s main commercial banks and the CBN said commercial banks had also been banned from re-selling CBN’s dollars among themselves, another attempt to end speculation in the naira.
The report quoted Segun Agbaje, chief executive officer of GTBank and a director of FMDQ as saying that the auctions, known in Nigeria as RDAS, accounted for only 10 percent of FX transactions and the decision to abandon them amounted in real terms to the central bank ditching its 160-176 target band against the dollar.
“Yes, we will move the band, “if demand in RDAS is only 10 percent, really the devaluation has happened,” Agbaje said.
The report disclosed that under the new rules, banks will only be able to purchase foreign exchange if they have a prior order from a corporate customer, such as a fuel importer or foreign mobile phone company looking to repatriate profits or dividends.
Jubril Aku, vice chairman FMDQ told journalists that any outstanding dollar demand at the end of each trading day will be met by the CBN at 198.
“Starting from Friday the interbank market is order-based – essentially filling orders of customers,” he said.
The CBN in statement signed by Ibrahim Mu’azu, director, corporate communications department said the managed float exchange rate regime, which the bank had adopted following the liberalisation of the foreign exchange market, has for the most part been successful in ensuring exchange rate stability in line with its mandate.
The statement affirmed that due to decline in world oil prices and the resultant fall in the country’s foreign exchange earnings, the Bank has observed a widening margin between the rates in the interbank and the rDAS window, thus engendering undesirable practices including round-tripping, speculative demand, rent-seeking, spurious demand, and inefficient use of scarce foreign exchange resources by economic agents.
The CBN says it has continued to put pressure on the nation’s foreign exchange reserves with no visible economic benefits to the productive sector of the economy and the general public.
According to the central bank, to avert the emergence of a multiple exchange rate regime and preserve the country’s foreign exchange reserves, it dedcided to close the rDAS/wDAS foreign exchange window at the CBN. “Henceforth, all demand for foreign exchange should be channelled to the interbank foreign exchange market,” the CBN disclosed.
However, the CBN did not specify the level at which it would sell dollars to the interbank market, but said it would continue to intervene “to meet genuine/legitimate demands”.
