The Central Bank of Nigeria has barred
commercial banks from holding any part of their
funds in United State dollars as it steps up
efforts to reduce pressure on the naira.
The CBN, in a circulated dated December 17,
2014, ordered the banks to stop keeping one per
cent of their shareholders’ funds in dollars as
foreign exchange trading position at the close of
each business day.
The move, according to the CBN, is meant to
reduce the volatility being experienced in the
naira-dollar exchange rate.
The circular, signed by the Director, Trade
Exchange, CBN, Mr. Olakanmi Gbadamosi, read,
“The CBN has observed the recent development
in the foreign exchange market and its
consequences on the stability of the exchange
rate. In order to preserve the stability of the
market, the foreign exchange trading position of
individual authorised dealer, which is currently at
one per cent of its shareholders’ fund unimpaired
by losses, has been temporarily reviewed
downward to zero per cent with immediate
effect.
“Consequently, authorised dealers are therefore
required to maintain zero per cent of their
shareholders’ fund as foreign exchange trading
position at the close of each business day. Any
infraction of the requirement of this circular, in
any way whatsoever, will attract appropriate
sanctions, which may include suspension from
the foreign exchange market.”
The CBN believes commercial banks are
contributing to the continued fall of the naira by
speculating against the naira through their dollar
stocks.
This, it was learnt, informed the central bank’s
decision to stop the banks from holding dollars.
Close to $1bn will be withdrawn from the
custody of the banks through the measure,
according to analysts.
The Governor, CBN, Mr. Godwin Emefiele, had
reiterated that the central bank was not going
back on the latest decision, adding that it would
not tolerate speculation against the ailing naira.
“We do not want speculators in this market any
longer. The banks are not supposed to hold any
funds (in dollars) of their own. They are
supposed to buy and sell currency on behalf of
customers,” he said.
In a related development, the CBN on Thursday
asked banks and members of the general public,
who purchase dollar at the interbank forex
market, to ensure that they utilised it within 48
hours.
A separate circular posted on the bank’s website
read, “We write to inform all authorised dealers
and the general public that with effect from the
date of this circular, funds purchased by banks/
customers at the interbank forex market must be
utilised within 48 hours from the date of
purchase, failing which they should be returned
to the CBN for repurchase at the bank’s buying
rate.”
Analysts said the new measures by the CBN
would be counterproductive and might not save
the naira from further fall
Currency strategist at Ecobank Nigeria, Mr.
Kunle Ezun, wrote in an economic note, “By this
new foreign exchange regulation, inter-bank
market liquidity is eroded, thereby creating a
non-competitive market devoid of price
transparency and discovery. Tightening the
conditions that allow access to the dollar, while
making no changes to how foreign exchange is
supplied will further heighten the naira volatility.
“Overall, the circular will create more volatility
that will require another set of CBN circulars to
address the dollar supply and demand
bottlenecks. As such, we expect the naira to
trade between 190 and 195.”
The naira has been battered in recent months by
plunging oil prices. Despite heavy intervention in
the market, the central bank has failed to keep
the currency in the new band it set on November
25 when it devalued the currency by eight per
cent in a bid to halt the slide its foreign
exchange reserves.
On whether the CBN might be forced to devalue
the naira again owing the continued fall in its
value, Emefiele told Reuters, “As the need arises,
action will be taken. But we believe the currency
is appropriately priced at this time.”
The naira fell to a record low of 188.85 to the
dollar after the governor’s comments, well
outside the bank’s target band.
The weak naira will also probably fuel inflation,
which has been stable in single digits for two
years. The impact on inflation is expected to be
felt in January.
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