CBN shuts official forex window to save Naira

The Central Bank of Nigeria (CBN), on Wednesday, announced the closure of its two foreign ex­change windows namely the Retail Dutch Auction Sys­tem (RDAS) and the Whole­sale Dutch Auction System (WDAS) foreign exchange windows, to save Nigeria’s Naira from continued devaluation.

This was part of efforts to avert continued pres­sure on the nation’s foreign reserves arising from sharp practices and mar­ket arbitraging.

Specifically, the apex bank said it decided to end the re­gime of official forex window- RDAS and WDAS and invari­ably, the official exchange rate band pegged at N168 to N176.

The move, according to CBN, was aimed at averting the emergence of a multiple exchange rate regime and pre­serve the country’s forex re­serves, which has plummeted in recent times.

A statement signed by the bank’s Director of Corporate Communications Depart­ment, Ibrahim Mu’azu, said that henceforth, all demand for forex should be channelled to the Interbank Foreign Ex­change Market. It regretted that its huge foreign exchange disbursement over the years has so far not had any signifi­cant impact on the economy hence the decision to close the window.

However, reacting to CBN’s announcement, Head of Af­rican Research at Standard Chartered, Razia Khan, in re­sponse to an email question, stated that CBN’s decision to stop RDAS auctions, ef­fectively discontinuing its FX subsidy for certain categories of demand was a positive news and should help create more transparency in the Nigerian market.

She noted that with oil pric­es currently at levels where FX reserves would be difficult to replenish, CBN’s appetite for continued support of the inter­bank FX rate would be closely monitored.

“With Nigerian FX reserves under pressure as a result of weaker oil prices, markets had anticipated eventual uni­fication of Nigeria’s different exchange rates. Following the announcement in February that presidential and parlia­mentary elections would be postponed to March 28, Ni­gerian markets were subject to greater volatility. Nigeria’s naira losses were frequently large enough to trigger a daily shutdown of her FX market,” Khan stated.

Similarly, a renowned econ­omist and Managing Director of Financial Derivatives Limit­ed, Bismarck Rewane, said the development was commend­able, as the measure would now make naira to be convert­ible and acceptable across the borders of the country.

He pointed out that there would be more naira available for governments at various lev­els, as well as the availability of the dollar, which will allow the naira to compete favourably and consequently, find its ap­propriate value.

“The situation is not bad at all. We are only having a naira adjustment. We have moved from control to auction and now tending towards convert­ibility. Whatever the naira is priced now is the real value of the currency. There is nothing again like exchange rate band. The N168 official exchange rate is now gone and I am sure that the speculations will be over now,” he said.