*Apex Bank Considers New Measures, Renaming I&E Market To NFEM
The nation’s currency, Naira has continued with its embarrassing fall, plunging further to another record low of N970/$1 on Monday, August 14, 2023 at the parallel market as the demand for dollar by importers and other end-users far outstrips supply for dollar
The situation is further compounded by apparent non-intervention by the Central Bank of Nigeria (CBN) and the lack of a price control mechanism.
Apparently rattled by the volatility in the FX market, President Bola Tinubu, on Monday, summoned the Acting Governor of the Central Bank of Nigeria (CBN), Mr. Folashodun Shonubi, seeking for solution.
The outcome of the meeting was the revelation that a new FX Policy that will lead to losses for speculators are in the works.
Shonubi warned that speculators, who he accused of fueling the crisis, will be the greatest lossers of the new policy targeted at stabilizing the exchange rate.
According to the acting governor, the apex bank has come up with a yet-to-be-announced policy that will wipe out the disparities between the official and black market rates.
The acting Governor, in a chat with the State House correspondents said the apex bank is poised to reverse the slide of the naira as it has lined up intervention measures that will be unveiled in the next few days.
He warned that the government will come down hard on those involved in underhand undertaking in the foreign exchange market, including the parallel market.
Shonubi affirmed that the president is concerned about the development in the market and its effect on the people, saying that he discussed what could be done to stabilize the naira with the president.
The acting CBN boss noted that the changes going on in the parallel market are not dictated by demands but by speculative attitude.
He warned that the speculators will suffer huge losses soon after the government activates its strategies.
His words: “Mr President is very concerned about some of the goings on in the foreign exchange market.
“One of the things we discussed is what could be done to stabilize and what could be done to improve the liquidity in the market and also the goings on in the various other markets, including the parallel market.
“He’s concerned about its impact on the average person, since, unfortunately, a lot of activities that we do, which are purely local, are still referenced to exchange rates in the parallel market.
“We’ve discussed and I’ve shared with him what we’re doing to improve supply.
“If you look at the official market, you’ll find that the market has been fairly stable and the spreads of the difference have not fluctuated as much.
“We do not believe that the changes going on in the parallel market are driven by pure economic demand and supply, but are touched by speculative demand from people.
“Some of the plans and strategies, which I’m not at liberty to share with you, means sooner rather than later, the speculators should be careful because we believe the things we’re doing, when they come to fruition, may result in significant losses to them.
“But my presence here is more about the concerns the President has and his needs to know that we are doing something about it, assurances of which I have given him totally.
“So I hope this helps. We are looking at it and we’re doing things which will significantly impact the market in a few days time and we will all see it.
“The intention is to ensure the environment operates at a level that’s more efficient, but also that is also very reasonable and does not have a negative impact to the best that we can on the lives of the average person. Thank you very much.”
In June, the CBN directed Deposit Money Banks to remove the rate cap on the Naira at the Investors and Exporters’ (I&E) Window of the foreign exchange market, to allow for a free float of the national currency against the dollar and other global currencies.
The development came barely two weeks after Tinubu promised to unify the nation’s multiple exchange rates.
Tinubu said after he was sworn on May 29, that his objective in adopting a floating exchange rate system was two-fold: first, to enable the naira to determine its actual value, and second, to narrow the gap between the official and parallel market rates, as well as curb profiteering by foreign exchange speculators.
But the consequence has been devastating and the terrible impact the falling rate of the naira is having on the living conditions of most Nigerians is excruciating.
Late July, the Economic Intelligence Unit (EIU) predicted a return to a managed control exchange rate system.
The analytical firm predicted a return to a Central Bank of Nigeria (CBN)-controlled exchange rate due to the intense pressure the Naira has faced since the president announced a switch to a floating exchange rate.
The firm also based its prediction on the CBN’s seeming lack of experience in managing a floating exchange rate system.
Though Tinubu insisted that the decision to float the Naira was one he was ready to stick to, indications emerged on Monday that he may have a rethink.
MetroBusinessNews (MBN) gathered that Tinubu is deeply concerned about recent developments in the foreign exchange market that it approved measures to stabilise and enhance liquidity in the market, including the parallel market.
Though Shonubi failed to disclose what those measures are, it was further gathered CBN may be considering a return to a managed control exchange rate system as the only option to stem the free fall of the Naira.
The acting Governor also revealed that the official foreign exchange market, otherwise known as the Investors and Exporters (I&E) window, will be renamed the Nigerian Foreign Exchange Market (NFEM).
Shonubi stated this while delivering a Distinguished Personality lecture titled: “Diaspora Remittances and Nigeria Economic Development” for members of the Executive Intelligence Management Course (EIMC) 16 at the National Institute for Security Studies, Abuja.
The development is coming barely 2 months after the apex bank confirmed the abolishment of segmentation in the foreign exchange market and then collapsed all segments and rates into the I&E window, which it now regards as the sole official forex market.
The I&E window, which was established by the CBN in 2017, is the market trading segment for investors, exporters and end-users that allows for forex trades to be made at exchange rates determined based on prevailing market circumstances, thus ensuring efficient and effective price discovery in the Nigerian foreign exchange market.
According to the Governor, “We will rename the foreign exchange market, known as the I & E market, to the Nigerian Foreign Exchange Market, as it is the sole market we acknowledge.”
The CBN boss had hinted that the apex bank will sanction commercial banks engaging in illegal sales of forex, adding that a commission had been formed to pay unscheduled visits to banks accused of unlawfully selling dollars.
He noted that despite efforts to induce individuals to engage in formal market transactions by granting a N5 refund through its Naira 4 Dollar scheme, the policy was still ineffective prompting the N5 rebate to be discontinued.
He, however, still acknowledged the usefulness of incentives in attracting people to the formal market.
Shonubi had also attributed the crash of the naira against the dollar and its inability to manage the foreign exchange market to the diversion of diaspora remittances to unofficial markets like the parallel.
He explained that many diaspora remittances came to Nigeria in dollars and were not documented officially, as they end up in the parallel market.
He also noted that the challenge with the unofficial market or parallel market is that due to the fact that it is not regulated, it becomes an easy place to have criminal activities.