Dollar supply is at low ebbs in Nigeria’s foreign exchange market but it may get worse after security operatives, the Department of State Security (DSS), allegedly arrested select Bureau de change operators for selling the greenback above N400/$.
Traders told BusinessDay that the DSS raided the offices of Bureau de change (BDC) dealers on Thursday, detaining some dealers and ordering others to sell dollars at a lower rate in a bid to forestall the naira’s plunge.
Aminu Gwadabe, president of the Association of De Bureau Operators of Nigeria (ABCON) said that the members of the association are ready to cooperate with government and law enforcement agencies in ensuring convergence of the different rates. He acknowledged that the problem has been that of hoarding which has been creating scarcity and depreciating the naira.
Analysts say the move to peg the rates at which Bureau de change operators sell dollars may worsen the dollar shortages in the already illiquid market and create “another black market within a black market.”
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If dollar shortages intensify, it could see inflation stretch an 11-year high of 17.9 percent recorded in September. It also translates to more woes for the manufacturing sector which is in recession due to the lack of sufficient dollars to import raw materials.
“FX traders may hoard their stock consequently, making it more expensive, as trades migrate to secret venues,” said Rafiq Raji, the Managing Director & Chief Economist at consulting firm, Macro Africa Intel.
The Central Bank has denied any involvement in the arrest of the currency dealers.
“This action could further dry up dollar liquidity and feed into an already swelling demand backlog,” said Zeal Akaraiwe, the CEO at financial advisory firm, Graeme Blaque Group in an interview on CNBC.
The CBN has struggled to stop the naira’s slide against the dollar on the black market, where importers go to buy dollars, due to severe hard currency shortages in Africa’s biggest economy.
The bank has kept the official naira rate to the dollar artificially high, effectively driving hard currency dealing away from commercial lenders and towards the black market, the real benchmark.
“In the long-run, the only way the official currency rate in Nigeria can be sustainable is if oil prices rises to $70-75, which is not likely when the US president wants to boost US shale production,” said Charles Robertson, chief economist at Renaissance Capital in response to emailed questions.
At the official window on Thursday, the naira was exchanging at N315/$ at 2pm in Lagos, Bloomberg data confirmed.
Nigeria’s currency, the naira, has faced severe pressure as the country has struggled to stabilise the value of its currency.
A drastic drop in oil price as well as conflict in the Niger Delta has meant that Nigeria has struggled to attract dollars which are in high demand in the developing country.
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