Nigeria will end its multiple exchange rate system, as it seeks to consolidate gains from a rate convergence between the Investors and Exporters window and the black market, according to Bola Onadele, head of trading platform, FMDQ Securities Exchange.
Africa’s biggest economy has at least five exchange rates which include one for Muslim pilgrims and another for portfolio investors. There is also a retail rate set by licensed exchange bureaus, and a rate for foreign travel and school fees, in addition to the official and black market rates. There has however been a rate convergence since Wednesday, between the rate for portfolio investors and that which is quoted by black market traders.
“There is opportunity for convergence and there is no better time for it,” said Onadele, “We are taking a phased approach towards a single foreign-exchange market,” he said, referring to collaborations between the Central Bank and FMDQ. He gave no specific details of the timing.
On Friday, the naira closed at N365 per dollar at the I & E window, according to FMDQ data, the same rate as was quoted in the black market.
“The gradual convergence of the exchange rate on both black market and investor forex window is an opportunity for the central bank to unify rates in all segments of the forex market,” Aminu Gwadabe, president of the country’s Association of Bureaux De Change Operators said on Friday.
Gwadabe said a move to eliminate multiple rates would restore investors’ confidence in the economy and boost offshore dollar inflows, further strengthening the naira.
Nigeria is battling a currency crisis brought on by low oil prices which tipped its economy into recession and created chronic dollar shortages. But it must first arrest a fragmented currency market that has spooked investors.
The central bank has been intervening on the official market to try to narrow the spread between rates on the official market and black market – where the local currency trades around 30 percent weaker. It has sold about $5 billion since February. The naira was quoted at N305 per dollar on the CBN website on Friday.
In what is viewed as tentative steps toward freeing its currency amid economic turmoil caused by a shortage of dollars, the apex bank introduced a new window for Investors and Exporters- NAFEX- on April 24.
Stocks have since rallied to a more than two year high, while the naira dollar exchange rate has gained at the parallel market.
Foreign exchange transactions have consistently improved since the creation of the new window– intended for investors and exporters.
In the month of May, transactions soared to a 10-month high of N3 billion, according to data compiled by BusinessDay.
This represents a 31 percent increase compared to April- the month the window was created- and a 48 percent increase from March.
LOLADE AKINMURELE
