Naira trades 1,498/$ at official market, CBN tackles racketeers

The naira appreciated slightly against the United States dollars at the Nigerian Autonomous Foreign Exchange Market on Thursday, closing at the rate of N1,498.25/$ from N1,503.38/$ recorded the previous day.

This came as the Central Bank of Nigeria on Thursday rolled out series of circulars to tackle foreign exchange racketeers and financial services operators engaged in sharp practices.  The three circulars were dated February 14, 2024.

The CBN, in the first circular, stopped banks from paying Personal Travel Allowance to their customers in cash. In a second circular, it also asked International Oil Companies from repatriating all their revenue to their parent companies at once. The apex banks also, in the third circular, reviewed its guidelines to stop under-invoicing of exports and over-invoicing of imports.

They circulars came as the naira closed near 1,500/dollar at the official market on Thursday. This was despite a drop in dollar supply by commercial banks at the spot FX market.

According to data from the FMDQ exchange securities, the supply had increased by $292.3m to $381.92 on Tuesday from $89.61m recorded on Monday. It however dropped to $117.87m on Wednesday.

On Monday, the naira started at an all-time low of N1,534/$, indicating serious consequences on the price of goods and services.

The naira gained marginally on Tuesday to N1,499/$ but fell to N1,503.38/$ at the close of trading on Wednesday before recovering to N1,498/$ at the close of trading activities on Thursday.

On the parallel segment of the foreign exchange market, the Naira depreciated to N1,600/$ Thursday’s rate is about N97 or 6.45 per cent higher than the N1,503/$ at the beginning of the week.

Checks by our correspondent show that Nigerians have continued to visit the black market sellers despite the efforts of the Central Bank of Nigeria to curb speculations.

In recent times, the naira has weakened beyond financial experts’ projections. The Group Managing Director of Cowry Asset Management Limited, Johnson Chukwu, during his firm’s 2024 outlook event projected that the naira might depreciate to N1,500/$ in 2024.

He said, “The worst case scenario is that the naira could worsen to N1,500 against the dollar.”

A Bureau De Change operator in Abuja told The PUNCH that the American greenback closed at N1,600/$ on Thursday.

“Today, the dollar was sold at the rate of N1,600. It is increasing and we are not happy about it.”

A BDC operator, Faruq Lawal, in the CMS area of Lagos, said that the naira closed at N1,610 to a dollar.

“We don’t know what is going on with the Naira these days,” he said.

According to the BDC operators, there is currently uncertainty as regards the price of the naira against the dollar due to high demand.

Another currency trader in Abuja confirmed that the Naira traded at N1,600 to the dollar.

A report by Comercio Partners said the Naira plunged about 66 per cent  in 2023.

“The period from January 2023 to December 2023 witnessed a significant decline in the official exchange rate, plunging by 66 per cent from 462 Naira per US dollar to 1041 Naira per US dollar. Simultaneously, the parallel market recorded a rate of N1,207 compared to N755 earlier in the year, reflecting a stark disparity between the official and parallel rates,” the report said.

According to the report, the persistent FX shortages have created a formidable challenge for exchange rate liberalisation done by the Central Bank of Nigeria.

It said that despite the efforts of the CBN to address these shortages, the widening gap between official and parallel exchange rates signals a complex landscape.

CBN tackles racketeers.

Meanwhile, the CBN has reviewed the allowable limit of price deviation for exports and imports to -15 per cent and +15 per cent of the global average prices, respectively.

The bank disclosed this in a circular issued to all authorised dealer banks on Thursday and singed by its Director, Trade and Exchange Department, Dr. Hassan Mahmud.

Price deviation is a statistical term that indicates the volatility of price in a market while allowable limit is a government-imposed trade restriction that controls the number or monetary value of goods that a country can import or export during a particular period. Countries use quotas in international trade to help regulate the volume of trade between them and other countries.

The CBN said the review was due to global inflation and other related challenges.  The International Monetary Fund predicted that Global headline inflation is expected to fall to 5.8 per cent in 2024 and 4.4 per cent in 2025.

The circular read in part, “Following the implementation of the Price Verification System to curb over-invoicing of imports and under-invoicing of exports, the CBN in a circular referenced TED/FEM/FPO/PUB/01/001 stated that declared prices of import items that are more than 2.5 per cent above the global average prices of the referenced item will be queried.

“However, due to global inflation and other related challenges, the CBN has reviewed the allowable limit of price deviation for exports and imports to -15 per cent and +15 per cent of the global average prices, respectively.”

The CBN added that the PVS is not meant to determine the actual prices of items for tariffs or duty charged by government “But rather to enable it curtail the excess outflow of the limited foreign exchange through over-invoicing and other price manipulation activities,” the circular said.

In another circular issued on Thursday, the CBN barred cash payment of Personal and Business Travel Allowances by banks.

In the circular  also signed by Mahmud, the payout of BTA/PTAs can only be done electronically.

Part of the circular read, “In line with the Bank’s commitment to ensure transparency and stability in the foreign exchange market and avoid foreign exchange malpractices. All authorized dealer banks shall henceforth effect payout of PTA/BTA through electronic channels only, including debit or credit cards.

“For the avoidance of doubt, payment of PTA/BTA by cash is no longer permitted. Authorized Dealers and the general public are hereby to note and comply accordingly.”

Also, the CBN has directed International Oil Companies operating in the country to fund their offshore accounts in two phases.

CBN noted that the ‘cash pooling’ activities of the OICs affect liquidity in the domestic forex market.

Cash pooling allows the holding company (or parent company) to act as a central unit to distribute liquidity. This type of central cash management allows for the interests of each subsidiary to be served more efficiently.

The apex bank, henceforth, directed that “banks are allowed to pool cash on behalf of IOCs, subject to a maximum of 50 per cent of the repatriated export proceeds in the first instance.”

The CBN noted that the remaining half “may be repatriated after 90 days from the date of inflow of export proceeds.”

The circular, titled, ‘Requirements for foreign currency cash pooling on behalf of International Oil Companies in Nigeria,’ read, “The Central Bank has observed that proceeds of crude oil exports by International Oil Companies operating in Nigeria are transferred offshore to fund parent accounts of the IOCs (otherwise referred to as cash polling). This has an impact on liquidity in the domestic foreign exchange market.

“In line with the ongoing reforms in the foreign exchange market, it has become necessary to take measures to address this trend.”

The apex bank

Consequently, the apex bank issued the following “Banks are allowed to pool cash on behalf of IOCs, subject to a maximum of 50 per cent of the repatriated export proceeds in the first instance.

“The balance 50 per cent may be repatriated after 90 days from the date of inflow of export proceeds.”

The CBN noted that these shall be subject to the fulfilment of a “prior approval of the CBN for the repatriation of funds under the ‘cash pooling’ transaction, ‘cash pooling’ agreement with the parent entity of the IOCs operating in Nigeria,” among others.

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