Nigeria brings forex back into the open to defeat street market
Nigeria is bringing foreign-exchange trading back into public view, the latest step in its bid to narrow the gap between the official and unofficial rate of its naira currency.
The country’s financial crimes watchdog has given the Association of Bureaux de Change Operators of Nigeria the go-ahead to publicly post the buying and selling rates of the naira against the dollar online.
The move is intended “to enhance competitiveness and price discovery in the market and challenge the parallel market,” said the group’s president, Aminu Gwadabe.
The step reverses measures by the previous leadership of the central bank to control bureaux de change and limit the visibility of the unofficial market in an effort to shore up the official naira. That move only drove activity onto the street and into the shadows.
Naira rates will now be broadly visible online — part of a wider effort by Africa’s most-populous nation to move away from a managed exchange rate and unify the two markets.
Bumpy Ride
The process to ease the country’s long-standing currency regime, which Nigeria hopes will attract foreign investment, began weeks after newly elected President Bola Tinubu took office in late May. But it’s been bumpy so far.
The naira has weakened by about 50% against the dollar since the reforms were announced in June and the spread between the two markets — which briefly merged — has widened due to the local scarcity of dollars.
The Economic and Financial Crimes Commission has taken aim at currency traders, many who operate on the streets, accusing them of money laundering and manipulation.
The central bank in September also warned foreign-currency hawkers to stop betting against the naira or face sanctions.
Bigger Problem
They’re just part of a bigger problem.
Institutions seeking large sums of dollars, including foreign companies, which need to repatriate naira revenue, get the US currency via the central bank at the official rate.
Inadequate liquidity in the official market has led to a hefty backlog of demand, which the central bank is trying to reduce but still has some way to go. Finance Minister Wale Edun told Bloomberg Television on Jan. 17 the backlog was about $5 billion. Others say it may be twice as high.
Despite these efforts, the naira remains under pressure. Its value on the unofficial market on Tuesday was about 1,365 naira per dollar, a record low and more than 30% above the official rate.
Moreover, it’s not clear if the rates to be published by the exchange bureaux will be very different from those already collated by dealers on the street, who’re also licensed operators.
The central bank in September capped the rate at which forex bureaux can transact in the currency at plus-or-minus 2.5% of the official market-weighted average from the previous day.
In 2021, it had suspended an online platform set up by the bureaux de change to publish their own rates, as well as another platform that published the parallel market rates, accusing the operators of manipulating the rates.
The bureaux will now be “upscaling,” the old website to “serve as a challenger to other platforms in the economy,” Gwadabe said.
