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Currency controls boosting black market patronage, say dealers

The Nation logo The Nation 13/07/2020 Mustapha Temidayo

Financial Market Dealers  have said the implementation of currency control, making it difficult for certain sectors of the economy to access dollar at official rate, will continue to make black market transactions attractive to end users.

Trading Desk Manager, AZA, Murega Mungai said the Central Bank of Nigeria (CBN) has started the journey from multiple exchange rates to a unified value through the devaluation of the naira at the official market last week.

He said the CBN’s move was a  departure that the International Monetary Fund (IMF) and investors have long advocated.

The exchange rate at the parallel market fell to a new three-year low last Friday closing at N463/$1. However, on the officially recognised NAFEX Market Forex turnover rose by 110.6 per cent last Thursday strengthening the exchange rate to N386.50/$1.

At the parallel market, where forex is traded unofficially, the naira depreciated by N2 to a dollar to/close at N463 to a dollar/on Thursday, as against the N461 to a dollar on Wednesday, the lowest Naira value in about three years.

The exchange rate at the beginning of the week was N461 to a dollar. The last time the exchange rate traded at N463 levels at the black market was March 10, 2017.

Mungai said: ”The question now is: How much further does the official rate need to fall to match the unofficial level? One thing is clear: As long as the unofficial market remains, there will be a gap in rates as dealers need to make some profit.”

And as long as there are restrictions on access to dollars, an unofficial market will continue to fill demand. The journey towards unification will be a series of gradual, subtle steps.

Adjustment in official rates last week from N360 to N381 to the dollar was not even confirmed by the CBN website and was only visible through data published on the FMDQ, causing confusion among traders as to whether the rates had actually been devalued.

“In fact, the regulator sold undisclosed amounts of dollars to lenders in the market, signifying depreciation. Parallel market rates held steady at N461 levels for the better part of the week, eventually retracting to N463 amid increased dollar demand in the medium term, given multiple pressure points for the naira,” he said.

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