Nigeria: Naira - CBN Sells $672 Million in Two Weeks Under Retail Das

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The Retail DAS, which requires that banks bid on their own accounts and then meet the demands of their individual customers, was jettisoned in 2006 and replaced with the Wholesale Dutch Auction System. Under the wholesale system, banks bid directly on behalf of the customers stating how much each requires and the purpose, a situation believed to have been fraught with loopholes that have fuelled speculative activities in the inter-bank market. The return to RDAS followed weeks of wide swings in the exchange rate as the fall assumed a worrying dimension.

There are indications that the Naira may have started to stabilize, although it is not however known as at last weekend whether the improvement in exchange rate against the US$, for example, would endure after sliding from N118/$ in November to between N154 and N156/$. The Naira lost more than 20 per cent since November following the decision by the CBN to allow it find its realistic value rather than continuing the policy of defending it with its external reserves which had been depleted by between $10-$15 billion by January.

Analysts said at the weekend that "the value of the Naira during the week has been relatively stable due to an increase in Naira denominated funds required by multinational oil companies to finance their month-end transactions."

This situation, it is believed, has improved supply of dollar in excess of $500 million during the week.

Soludo has linked that the stability in the naira exchange rate to the recent temporary policy shift helped particularly by the reduction of nollar denominated reserves that Nigerian banks can hold, which has helped support the supply of dollar at the foreign exchange market.

Naira remained at N143.60 to a dollar at the CBN official market and exchanged at N147.66/$ at the parallel market, after sliding by 1.01 per cent against previous day's rate. This is an improvement over the N150/$ rate at the inter-bank market on January 22 and N147/$ parallel market rate. The Naira had just before the reintroduction of the RDAS exchanged at N161/$ (inter-day) before dropping in apparent reaction by the market to the announcement by the CBN warning speculators of dire consequences and those stacking the Dollar that would get their fingers burned soon.

Andrew Alli, Chief Executive of the African Finance Corporation, at the weekend in Lagos blamed the woes of the naira on lack of confidence by the lack of openness and transparency in government activities. He blamed the volatility of the Naira on fear of the unknown, as those who have US$ payments due in a year have started buying now because of the air of uncertainty.

Preparatory to the implementation of the RDAS and poised to address the depreciation of the Naira from N118 per dollar in November last year to about N157 per dollar then, the CBN Governor also met with chief executive officers of banks in Lagos. At the meeting he warned against speculative activities and other sharp practices warning that heavy sanctions would be imposed on any erring bank.

This was followed by a meeting with executive officers of the Association of Bureaux De Change Operators of Nigeria (ABCON) threatening revocation of operating license of any BDC operator that sell official foreign exchange above the two per cent maximum spread.

The names of such erring operators, he added would be published in national dailies even if they are up to 400, wondering why BDCs were reselling the US dollar, for example, at up to N10 above the official rate from the apex bank.

The source noted that the ABCON executives, agreed with an earlier analysis of the CBN Governor, blaming the rapid depreciation of the Naira in the parallel market on speculators who invaded the market in search of quick gains.

ABCON President, Farouk Suleiman, assured the CBN of the group's readiness to partner the CBN to ensure naira's stability. One way of doing so, he said, is bey ensuring that BDC operators comply with the two per cent maximum spread.

The governor also warned that the CBN would ensure compliance with the spread and would from this week dispatch its staff into the market to access level of compliance and report back. The CBN, he continued, will no longer allow the market to operate without restrictions, adding that the apex bank is already taking steps to strengthen and stabilize the Naira, repeating his earlier warning that those stockpiling dollars will burn their fingers.

The CBN, he assured, remains committed to ensuring that the value of naira remains stable, not fixed, adding that the apex bank would continue to monitor happenings in the Forex market very keenly and will tighten the loose ends while continuing to fund genuine transactions, eliminating frivolous transactions in the market.

Soludo warned of dire consequences for banks caught lying or misreporting, just as those caught engaging in round tripping, risk severe sanctions. He promised that the circular to be sent to banks on the matter soon will spell out punishments including being barred from the foreign exchange market.