The Central Bank of Nigeria’s aggressive interventions in the foreign exchange market stabilises the naira and eliminates currency speculators without depleting the nation’s foreign reserves which is now $46 billion

THE Central Bank of Nigeria’s, CBN, aggressive interventions in the foreign exchange market appears to have rolled bank the activities of currency speculators. The speculators coupled with scarcity of Naira due to poor revenue from from crude oil especially in 2016 escalated the price of dollar to naira to about N500 in the parallel market. The scarcity of dollar also affected some businesses and start-ups which need FOREX for their operations including parents and guardians who were unable to get dollars to pay their children’s tuition abroad.  However, the CBN has resolved these problems through its policies and interventions in the market.

In more than one year, the CBN, has injected a total of $18.067 billion into the interbank segment of the foreign exchange market since it started its intervention into the market in February 2017. According to the weekly foreign exchange, FOREX, sales by the CBN between February 21, 2017, and March 23, 2018, the CBN sold dollar to authorised dealers in a total of 76 sessions.

A breakdown of the dollar sales showed that in 2017 alone, the bank intervened with a total of $15.043 billion. Also, between January 12 and March 23, 2018, it has offered a total of $3.024 billion through wholesale forwards and retail Secondary Market Intervention Sales, SMIS.

The CBN not only pumped money into the market but it carried out effective monitoring to ensure that banks and other operators stick to its policy on FOREX as they sell to  customers judiciously. It also threatened to blacklist banks that play pranks with the forex.

Also, in April 2017, the CBN introduced a new exchange rate window, the Nigerian Autonomous Foreign Exchange Fixing Mechanism, NAFEX, commonly known as the Investors’ and Exporters’, I and E window. The window and the interbank market have been seen as the main exchange rate windows utilised in foreign currency trading.

The interbank market window trades at around N326-N345 to $1 while the I and E window trades around N360/$1. The aggressive interventions, notwithstanding, Nigeria’s external reserves recently hit a five-year high of $46 billion,  representing an increase of 18 per cent or $7 billion over the country’s reserves figure of $38.912 billion as of January 2, 2018.

It has also significantly surpassed the $40 billion target for 2018 announced by Godwin Emefiele, governor, CBN last November, and is expected to inch up to $50 billion in the next few months.

Isaac Okorafor, director, corporate communications, CBN recently pointed out that the interventions in the FOREX window helped to moderate the pressure on the forex reserves by sustaining liquidity in the market and boosting production and trade.  He also noted that the CBN policy restricting access to FOREX from Nigeria’s foreign exchange market to importers of some 41 items had made a huge impact on the status of Nigeria’s reserves and boosted the supply of local substitutes for imported goods, created jobs at home, and enhanced the incomes of farmers and local manufacturers.

Interestingly, market analysts also agree that the interventions by the central bank have helped in eliminating the pressure on the FOREX market, ensured exchange rate stability and eliminated currency speculators. The result of all these is that naira exchange rate has remained stable since last year when the central bank commenced the FOREX sales.

This notwithstanding, the CBN, as part of its efforts to encourage start-ups that are financial technology, Fintech, companies, has disclosed plan to develop a regulatory framework for operators in the sub-sector. Musa Jimoh, deputy director, payment system department, CBN, who revealed this during the launch of the Association of Financial Service Innovators in Lagos, also said a regulatory sandbox would be developed for members of the association.

A sandbox is a security mechanism for separating running programmes, usually to mitigate system failures or software vulnerabilities from spreading. According to Jimoh, the regulatory framework would be out before the middle of the year.

“One of the things we have done now is to start the process of introducing a regulatory sandbox that would lower the barrier for entry. We (CBN) are actually working in partnership with Bill and Melinda Gates Foundation. They are the ones giving us technical assistance in developing the framework,” he said.

Jimoh pointed out that the objective of the association was to empower start-ups, innovators, technology companies and young Nigerians that have great ideas, but lack the financial wherewithal to bring out their products or even integrate with the banks.

“We don’t want those ideas to just die off. So, what the CBN and the Nigeria Interbank Settlement System did was to bring all these start-ups together and try to understand their pains and constraints and sees how we can give them helping hands. Our believe is that if we give them helping hands, we are basically building the economy.  We are bringing a new categorisation of companies called fintechs.

“So, the essence of this association is so that they can come with one voice to tell the regulators and the banking community how we can support them and how we can leverage on some of the digital services that they have. Overall, their contribution would lower the barrier for financial inclusion. There is this global understanding that digital technology would aid financial inclusion because it would be able to provide tools that from your house, your homes and the gadgets you carry, you are able to access financial services.”

– Mar. 31, 2018 @ 4:10 GMT |