The National President of the Association of Bureaux De Change of Nigeria, ABCON, Dr Aminu Gwadabe, has shared insights on the recent Naira depreciation and solutions to attaining foreign exchange stability in Nigeria.
In the past two weeks, Naira depreciation resumed, almost undoing the currency gains at the foreign exchange market in the last two months. How would you assess the situation? What is fundamentally wrong?
The Naira’s recent negative downward trend is worrisome and has come with many surprises.
Our interrogations revealed the following perspectives.
First, we discovered after the Naira achieved considerable strength to an all-high at below N1000/$, precisely N969/$ around April 8th 2024, some rational behaviour, not fundamental, erupted where people were buying dollars from the open market and selling at the interbank window and thus, there was significant demand pressure on the Naira and it turned its positive strides to weakness.
In the same vein, the activities of the online platforms come with serious debacles, where traders put pressure on the open market and dump the inline platforms where the Naira is badly traded.
As long as the platforms remain profitable, the Naira must continue depreciating.
Thirdly, the continuous attacks of speculators to reap their lost gains on naira depreciation is another issue. They have continued to speculate and hold their position.
Last week, the Central Bank of Nigeria released another intervention of $10,000 to legible BDCs at 1,021 per Dollar, although the Naira failed to fall below N1,300 per Dollar in the parallel market section. Does this not defeat the essence of the intervention?
The tumultuous challenge we all face is the acute liquidity shortage in the retail end market, where volatility is most pervasive.
The BDC sub-sector is the most potent tool in the central bank’s transmission mechanism of their foreign exchange policies.
We have seen the renewed collaborations of the central bank with the BDCs, which have achieved true exchange rate unification and naira appreciation.
The BDCs are the third leg of the market, and the hitherto suspension of their operations in July 2021 marked the beginning of a wild volatility in the market.
Before their suspension in July 2021, the open market rate was trading at N495/$, but with their immediate suspension, the rates continued to move southward against the Naira to the Dollar.
The CBN is working to achieve stability; it is leveraging on the BDCs to achieve stability and meet the invisible demand of the critical retail end of the market for the provision of school fees, medical fees, personal and Business Travelling allowance and has helped to achieve the convergence of both the open market rate and the Nigerian Autonomous Foreign Exchange, NAFEM, rates.
On Friday, both markets were trading at above N1300/$ respectively.
I think enhancing the collaboration will continue to confront speculation, hoarding and illegal currency substitutions.
Are your members part of the currency speculators contributing to the recent rise in the Dollar at the FX market as the EFCC recently arrested 34 persons in Abuja? What is your reaction to the disadvantages of currency speculators, Binance and other Cryptocurrency platforms?
It is a misnomer that most blame is attributed to the BDCs for naira woes.
We frowned at it as a generalisation of stigmatisation to blame only a minute subset of the market that controls less than 10 per cent of the market.
The question of changing the convention is where the significant percentages are, too.
We can not forget so quickly that a large portion of our diaspora remittances is said to be over 90 per cent, leaving us with only 10 per cent coming into the economy.
I also want to underscore the Apex Bank’s new draft of BDCs guidelines that provided a BDCs agency for international money transfer service operators and IMTSOs to attract huge diaspora remittances.
The volatility of a local country’s currency is like runoff water (erosion). If you don’t direct it, it will direct itself.
It is also worth noting that the recent CBN policies and guidelines have helped discourage illegal economic behaviours and put foundations for diversifying the sources of foreign exchange inflows.
On the government’s fiscal side, they are attracting investments in our oil field to increase capacity, efficiency and effectiveness.
The takeoff of the Dangote refinery will also help reduce our heavy dependence on the import of finished crude oil products, thereby increasing our foreign reserves to be hedged against speculators.
On the Monetary side, the Central Bank of Nigeria has introduced varying policies like the use of treasury bills to attract foreign investors, banks opening net positions to discourage holding positions of financial institutions, and willing buyers willing seller quotes for price discovery and transparency.
Also, the non-eligibility policy of using dollar deposits in non-export precedes Dom’s account for naira loan collateral.
Recently, ABCON unveiled plans to harmonise the retail section of the FX market; how would this be achieved, and how will the move tackle Naira depreciation?
In line with our vision to democratise, centralise and digitalize the retail end market, ABCON, as a proactive organisation and a strategic partner in the retail end FX market, has identified the trust we build with our clients and embraced innovation as part of our journey to automate our business process from manual to digital and develop a unified retail end forex market for stakeholders engagements and trading to confront the menace of undocumented and unregistered platforms like Binance, Bybit, etc.
The unified platform helps with price discovery, autonomy, reporting, market intelligence reports, and ease of monitoring and supervision of regulatory and security agencies.
We have inaugurated our state chapter chairmen to support our zonal chairpersons nationwide in repositioning data on market participants in their respective zones.
We also expect to unveil our upgraded SAAZ MASTERS for our members’ efficiency and effectiveness with their extant regulatory obligations.
These unified digital trading platforms will enable price discovery, our member’s visibility, and effective AML/CFT compliance.
How would you access Olayemi Cardoso’s administration as Central Bank of Nigeria governor and his impact on the country’s currency market?
The Olayemi Cardoso-led team at the apex Bank has brought professionalism, stakeholder engagement, and leadership qualities.
For the first time, a draft policy guideline was released before its final implementation in our sub-sector for inputs and observations.
They inherited turbulent waters and worked out of the box to institute fundamental market reforms.
I urge them to always be deliberate, decisive, agile, and act fast.
They are introducing a lot of orientations into the financial sector architecture and wish them well.
What is the short-term and long-term solution to Naira’s stability against the Dollar in the FX market?
In the immediate term, fiscal and monetary authorities should continue to deepen effective linkages and harmonisation and act fast in confronting volatility.
I also recommend amnesty for citizens who want to bring their home holdings into the Dom accounts with less cumbersome documentation requirements.
Also, there is the need for Diaspora remittance bonds to attract the huge, constant and cheap diaspora remittance proceeds.
There should be continued conversation on our oil production capacity through foreign investments to boost capacity and outputs in the medium to long term.
It is also germane to diversify our foreign earnings and incentivize the non-oil exports, which contribute less than 5 per cent to our GDP through risk and standards and efficient port processing systems.
Finally, we should continue to empower our youth through innovations, skills, and job creation to tame the failure of Japa syndrome.
Your last word for Nigerians amid the recent depreciation and soaring inflation?
Let’s all change our mindset as citizens to make the naira sovereign in West Africa.
Let us avoid currency substitution, hoarding, speculation and round-tripping.
It is also necessary to be cautious as the Government and the CBN work to inject liquidity and strengthen the Naira.
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