…As Standard Chartered Bank discusses with CBN on alleged infraction
Dollar supply is at its lowest ebb in Nigeria’s fragile foreign exchange market, but it may get worse on the current raid by security agencies on the Bureau De Change Operators, Thursday.
Metrobusinessnews learnt that some bureau de change (BDC) operators who sold their dollar stock above N400/$ were arrested in Abuja and Lagos.
“It is primordial and crude to think of bringing convergence between official and parallel rates by force. Every liberalized market thrives on the forces of demand and supply.
“Rather concerted efforts should be at increasing FDIs through sale of assets, concessioning, loans to boost the dollar supply side,” says an industry source who pleaded for anonymity.
“It’s an effort in futility,” said Bismarck Rewane, an economist and CEO of consulting firm, Financial Derivatives Company (FDC).
“Prices are not fixed in a market, the moment you do that, you damage the credibility of the market,” Rewane added in a telephone interview with BusinessDay.
One trader told BusinessDay that the move was “ridiculous and an abnormally.
“I don’t know of any liberal market that goes this extent to defend its local currency,” the source said on condition of anonymity
Some other analysts say the move to peg the rates at which BDC’s sell dollars may worsen the dollar shortages in the already illiquid Nigerian foreign exchange market and create “another black market within a black market.”
This, according to them, is because the natural law is that money goes to where it is maximally priced.
“FX traders may hoard their stock consequently, making it more expensive, as trades migrate to secret venues,” said Rafiq Raji, the Managing Director & Chief Economist at consulting firm, Macro Africa Intel in a twitter response.
If dollar shortages intensify, it could see inflation stretch an 11-year high of 17.9 percent recorded in September. It also translates to more woes for the manufacturing sector which is in recession due to the lack of sufficient dollars to import raw materials.
Attempts to get the CBN’s comment on the matter were futile, as Isaac Okorafor, the apex bank’s head of communications wasn’t immediately available to respond to emailed questions and telephone calls.
However, Okorafor was reported to have confirmed the activities of the DSS in the BDC market. He said most of the people arrested were unlicensed operators who were taking advantage of speculation to reap illegal money.
He said though the CBN had no hand in the raid, it was a welcome development for the market.
“This action would further dry up dollar liquidity and feed into an already swelling demand backlog,” said Zeal Akaraiwe, the CEO at financial advisory firm, Graeme Blaque Group in an interview on CNBC.
The CBN has struggled to stop the naira’s slide against the dollar on the black market, where importers go to buy dollars, due to severe hard currency shortages in Africa’s biggest economy.
The bank has kept the official naira rate to the dollar artificially high, effectively driving hard currency dealing away from commercial lenders and towards the black market, the real benchmark.
“In the long-run, the only way the official currency rate in Nigeria can be sustainable is if oil prices rise to $70-75, which is not likely when the US president wants to boost US shale production,” said Chares Robertson, the chief economist at Renaissance Capital in response to emailed questions.
The current premium at the parallel market appears to have provided opportunity for some lender’s involvement in foreign exchange infraction.
Standard Chartered bank was said to have been fined N2 billion for the infraction, with the suspension of the bank’s treasurer.
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But Dayo Aderugbo, Head, Corporate Affairs and Brand & Marketing of the bank said last night that the transactions were in compliant with CBN regulations.
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“Standard Chartered is committed to complying with all local laws and regulations. As is the case with all our FX transactions, we believe this transaction is compliant with the applicable FX regulations and policies. We continue to engage with the Central Bank of Nigeria officials on this matter in an effort to reach an amicable resolution,” Aderugbo said.
The naira was exchanging for N315/$ as at 2pm in Lagos, at the official window on Thursday, according to Bloomberg data. While it traded at N460 per dollar on the black market, according to BusinessDay investigations.
However, Aminu Gwadabe, president of the Association of De Bureau Operators of Nigeria (ABCON) said that the members are ready to cooperate with government and law enforcement agencies in ensuring convergence of the different rates.
He acknowledged that the problem has been that of hoarding which has been creating scarcity.
“What the leadership of the association is doing is enlightenment on the need to play the game according to the rules, adding that doing contrary would force them out of the market,” Gwadabe said by phone.
On whether the members would have enough dollars to sell at the envisaged N410/N420/$, Gwadabe said “members are ready to sell whatever that is available.”
Officers of the Department of State Services (DSS) have raided two major Bureau de Change markets in Lagos and Abuja in a fresh attempt to end speculation in the foreign exchange transaction at the parallel market.
Immediately after the directives, the DSS operatives commenced the enforcement of the order by arresting those erring members that sold the dollar above N400 and or bought above N390 a dollar.