The Association of Bureaux de Change Operators of Nigeria (ABCON) has identified a single market driven foreign exchange as a step to stabilizing the value of the naira against other currencies.
The association also put the ideal or what it described as the “realistic exchange rate” under the prevailing economic circumstances at N400 to $1.
ABCON Ag. President, Mohammed Gwadabe, at a maiden interaction with journalists on Tuesday, said the single market exchange rate is one of the solutions the Association came up with to help stem market volatility.
He also expressed concern that despite series of policies enunciate by the Central Bank of Nigeria (CBN), to ensure stability; the forex market still remained highly volatile “Liquidity has shrunk because of the withdrawal of foreign investors from the market, most of them have moved out of the country. And one major factor too, is the drop in crude oil prices in the international market, and the dwindling foreign reserves.”
Reacting to ABCON’s position, Deputy Managing Director, Afrinvest Ltd, Victor Ndukauba, disagreed with Gwadabe on the single market rate, saying it was not possible in a market determined environment.
He said the best that could happen is a convergence of rates, noting that “price distortion means the market is inefficient and because there is scarcity of dollars because we (Nigeria) are not getting as much dollars as we used to from the sale of crude.”
He argued that a realistic market rate of the Naira can only be determined through the balance of payment transactions, income levels and purchasing power parity, and market integrity, adding that if the inter-bank rate was more transparent, people will be more willing to participate.
“Imagine if Diaspora Nigerians do $1billion monthly, this will boost confidence. But a situation where the parallel market is about N490 to $1, although very ridiculous, people will be tempted to that rate because they will have more value for their money.”
The CBN official market rate is N305 to $1, while banks sell to the BDC at N381. The BDCs have a band of N399, where the parallel market is about N480. However, the high volatility and multiple exchange rates have become a disincentive to new foreign direct investments, while the uncertainty and rate fluctuations have reduced the capacity of firms to invest in export.