Nigeria’s authorized currency traders’ association is asking its members to sell their stock of dollars in an attempt to narrow the spread between spot and illegal market prices.
The Association of Bureaux de Change Operators of Nigeria has asked its members not to hoard foreign currency , Aminu Gwadabe, president of the association, said in a text message. A group of officials have been checking on compliance in cities across the country, he said.
Dealers hoarding dollars may be barred from the central bank’s foreign-exchange auctions, people with knowledge of the matter said. [/b]The naira, which plunged to a four-year low of 505 a dollar on Monday, gained 0.6% to 490 on Friday in the unauthorized market, according to abokifx.com, a website that collates the data. It opened at 411.58 a dollar on the nafex window also used as the official rate by the central bank.
With inflation at almost 18%, many residents of Africa’s biggest economy have been accumulating foreign currencies to protect their wealth, often buying dollars from illegal traders. The demand in the parallel market distorts the exchange rate, according to the the Central Bank of Nigeria, and has prompted it to take steps to narrow the spread.
“We advise, and warn our members in particular, and the public to desist from any behavior of speculation and hoarding,” Gwadabe said. Such actions “will definitely lead to a very big collateral loss,” he said.
The central bank sells $10,000 each to over 5,000 dealers twice a week at 393 naira while they are asked to sell to customers at 395. That’s a 90 naira discount to the street rate, creating arbitrage opportunities.
A central spokesman said the lender is taking steps to block arbitrage opportunities resulting from the gap between the official and parallel markets.
Commercial banks executives also agreed to increase dollar supply for end users in a meeting that held with Governor Godwin Emefiele last week. With the arrangement, lenders can provide the greenback at the official rate of about 410 to 412 naira to reduce demand pressure on the streets.
Africa’s largest crude producer devalued its currency thrice since March last year as lower oil income, which accounts for about 90% of dollar earnings, put pressure on external reserves.