The last two or so weeks have seen the dramatic slide of the Naira vs other currencies. This is proving traumatic to many of us especially given the acceleration of the decline which has made, once again, expenses creep up even further. Additional concern has been raised by the Governor of the CBN whose behaviour and action we explore in this post. What exactly is going on, how did we get here and what do we do next?
Let’s Fight!
I didn’t watch the full press conference but found this found this snippet of video bewildering mainly because the response is not at all befitting of the position and is so personalised that it appears to have gone above a regulatory or legal matter. Why is the business activity of Aboki FX being blamed for issues in Nigeria and being taken as a personal insult?
Aboki FX
Aboki FX is a platform that publishes foreign exchange rates for the naira vs a number of currencies. Given the multi-rate environment, the rates are various and include BDC, parallel market, I&E window as well as cryptocurrency etc. They source their rates from buyers and sellers of currency in the various markets ie for BDC rates they survey bureau de change operators, and publish the information to the public and investors. They make money from adverts placed on their site.
CBN’s accusations
CBN has accused the site, and more specifically its founder, of illegal activity that undermines the economy. Big and bold accusations but a few things are not clear:
- What evidence is held to substantiate the claims and why comments are being made ahead of an investigation into these alleged illegal activities.
- Why the parallel market rate is CBN’s focus having already told BDCs to source their FX from elsewhere. Does the CBN governor want to curtail the purchase of dollars for anything other than PTA / BTA?
- What concrete steps the CBN is taking to fix the supply side of the problem which is the biggest contributor to the issue. Actions like this scare away overseas investors and compound supply side issues.
Responding to this nightmarish situation Aboki FX decided, on the 17th September, to stop publishing daily rates. Whilst I understand their decision, and surely the apex bank will be congratulating itself for this result, i wonder what they expect to happen as a result. Perhaps that rates will miraculously go back to the good old days when 1 naira could buy 2 dollars, i think not. If rates do recover even to a small degree this will give the CBN the impression that they were right and you know what they say about success breeding confidence.
In addition to suspending the publication, Aboki FX also rebutted the accusation of manipulating FX markets as their website focuses on data provision only and not fx trading.
Closure of the parallel market?
The naira has been sliding without pause for a number of years and in 2021 CBN officially devalued the naira by adopting the NAFEX / I&E window rate resulting in an 8% devaluation of the naira to an average N410 against 1 dollar. The parallel market was also impacted because a significant part of the need / want for dollars (over 40% of dollar demand) is not met at official markets / rates. Since then the parallel market has been affected by the CBN ban on selling dollars to bureax de change as more seekers of dollars flood this market. It seems that CBN wants the parallel market to disappear but unless the 40% + is met the parallel market is not going anywhere.
What should you do?
If you need dollars try and access them at official rates if the need fits within the narrow activities that are eligible for purchase. If not, hold off until the FGN eurobond issuance which is taking place in October. This will generate over 3bn of dollar liquidity / supply into the system and hopefully positively impact the parallel market rate positively but only in the short term.
Thank you for listening!