Currency Traders Lament As Naira Gains More Value Against US Dollar At Official And Parallel Markets

There were a series of lamentations yesterday by currency traders over the increasing losses and decreasing demand for the dollar as the naira continued to strengthen in both the official and parallel markets.

Naloaded News understands that the losses were a result of a 12% decrease, equivalent to N152.23, in the exchange rate for bureaux de change (BDC) to N1,117.5 per dollar set by the Central Bank of Nigeria (CBN).

Recall that the apex bank had earlier announced the ban on the use of foreign-denominated collaterals for naira loans.

It, however, exempted from the ban all Eurobonds issued by the Federal Government of Nigeria or Guarantees of foreign banks, including Standby Letters of Credit.

In a circular issued by the apex bank titled “The Use of Foreign-Currency Denominated Collaterals for Naira Loans”, the Director, of Banking Supervision Department, CBN, Dr. Adetona Adedeji, said: “The Central Bank of Nigeria has observed the prevailing situation where bank customers use Foreign Currency (FCY) as collaterals for Naira loans.

Consequently, the current practice of using foreign currency-denominated collaterals for Naira loans is hereby prohibited, except, where the foreign currency collateral is: Eurobonds issued by the Federal Government of Nigeria; or Guarantees of foreign banks, including Standby Letters of Credit.”

Naira Gaining Value Against US Dollar

According to data from FMDQ, the official market (Nigeria Foreign Exchange Market, NAFEM) witnessed the naira’s value rise by N20.44 to N1,230.61 per dollar yesterday, compared to N1,251.05 per dollar last Friday.

Similarly, the parallel market also experienced an appreciation of the naira by N45 to N1,200 per dollar yesterday, as opposed to N1,245 per dollar last Friday.

Naloaded News understands that this increase in value follows the CBN’s recent announcement that it will sell an additional $10,000 to 1,588 BDCs at a rate of N1,101 per dollar for eligible invisible transactions.

Furthermore, the CBN has instructed BDCs to sell to eligible end-users at a spread not exceeding 1.5 per cent.

Consequently, this implies that BDCs will sell to end users at a maximum exchange rate of N1,117.5 per dollar.

Announcing the new rate in a circular on Monday, April 8, Dr. W.J Kanya from the Trade and Exchange Department of the CBN said: “We write to inform you of the sale of $10,000 by the Central Bank of Nigeria, CBN, to BDCs at the rate of N1101/$1. The BDCs are, in turn, to sell to eligible end users at a spread of not more than 1.5 per cent above the purchase price.

“All eligible BDCs are, therefore, directed to commence payment of the Naira deposit to the under-listed CBN Naira Deposit Account Numbers from Today (yesterday), Monday, April 8, 2024, and submit confirmation of payment with other necessary documentation for disbursement at the appropriate CBN branches’.

Customers Suspending Transactions – Currency Dealers Lament Losses

Currency dealers who spoke to journalists recently expressed their frustration over the continuous appreciation of the naira against the US Dollar since the beginning of March, resulting in significant losses.

An anonymous BDC operator revealed that many BDCs have suffered losses on the dollars purchased from the CBN.

The CBN had sold dollars to BDCs at a rate of N1,251 per dollar, but the delivery was made at the end of business on Friday last week.

Unfortunately, most BDCs still held dollars bought at N1,251 per dollar when the CBN announced a reduction in the rate to N1,117.5 per dollar.

“The challenge now is that customers are suspending the decision to buy because, based on the CBN announcement, they expect the exchange rate to go down further.

“This morning (yesterday), a customer that has concluded all the necessary documentation, called to suspend the transaction,” one of the currency dealers told Vanguard.

A BDC operator on the Island, Mallam Umoru Yada, who also spoke to journalists, said: “This morning, the dollar traded at N1,110 per dollar. I can’t say what is going on but many BDCs have incurred losses.

“I bought a dollar for N1,800 and sold it at the rate of N1,200, N1,250. Imagine the loss. I don’t know what tomorrow’s rate will be . But with the way the rate is appreciating, the naira might close this month at N900 per dollar.”

On his part, another BDC operator at Yaba, Mallam Yakubu Ali, said: “I sold a dollar for N1,115 today (yesterday).

Yesterday (Sunday), it was sold at N1,200. The exchange rate is coming down drastically. I don’t know what tomorrow’s rate will be. I think the exchange rate is appreciating due to Central Bank policies.

Also, seeing the large margin of appreciation, those hoarding dollars are now selling them to avoid losses.

“There are enough dollars serving customers, despite increased demand but the pressure of fear of further depreciation has died.

“I see the naira appreciating to N1000 per dollar or N900 per dollar in the long run.”