The naira yesterday exchanged at N345 to the dollar in the parallel market. The exchange rate volatility worsened thereby forcing the Central Bank of Nigeria (CBN) to devalue the official exchange rate to narrow the gap between it and the parallel market.
The local currency eased 1.47 per cent from Friday’s close of 340 to the dollar, while the official rate remained at 197.50 to the dollar at the close of trading yesterday.
Traders said the black market rate had slipped as Nigerians with school and medical bills to pay abroad anticipated the CBN would stop allocating currency for such payments. The bank has not denied or confirmed any such plans.
Tumbling global oil prices have battered Nigeria’s crude exporter, with foreign exchange reserves down to an 11-year low at $27.85 billion by February 11.
Nigeria’s government is concerned that further depreciation will hurt poor Nigerians, but the bank’s refusal to revise the pegged exchange rate has widened a chasm between official rates and the parallel market.
“In my own view, the central bank should address the supply side of the market by allowing oil companies and banks to sell dollar to bureau de change operators as an immediate measure to reduce pressure on the naira,” said Aminu Gwadabe, head of the Association of Bureau de Change Operators of Nigeria.
Managing Director, Financial Derivatives of Nigeria Limited, Bismark Rewane, said naira devaluation is the answer to Nigeria’s economic woes. The economist said there is a big difference between economic drama and reality adding that people denying the need for devaluation are same people that keep stealing from the people.
He said those who want the naira not to be devalued should remember that it is all about competitiveness adding that the local currency can also appreciate if things are done rightly.
Rewane said that in the last 10 years, Western Union, Thomas Cook and others were bring dollars to the country. “The CBN said it sold $8 billion to bureaux de change (BDCs) in nearly two years but who are the owners of these BDCs? The issue is if you are a manufacturer and you get dollar at N197 from the CBN to import raw materials. There are two decisions to make. Manufacture the goods and sell as if you bought the at N310 to dollar because of the wide gap between the official and parallel market rates, or open a Letter of Credit and refuse to import. Then roundtrip the money and make 50 per cent outright profit,” he said.
He said devaluation will solve such problem because it will reduce the widening gap between the official and parallel market rates. He said many of the people asking government not to devalue the naira is because they want to abuse and steal the fund, pretending to be protecting the naira.
“I can tell you, there are vested interests. They pretend to be protecting and defending the naira, but in reality, they are not. In 1987, the naira depreciated by 76 per cent and by 20 per cent in 2009. But when oil prices rose, did they allow the naira to appreciate?”