The naira rose against the US dollar on Wednesday at both the official and unofficial markets, with the local currency making a significant gain against the greenback in the black market.
This happened after the Central Bank of Nigeria announced the final resolution of all valid foreign exchange backlogs, fulfilling a promise made by the CBN governor, Mr. Olayemi Cardoso, to process an inherited backlog of $7bn in claims.
The Acting CBN Director, Corporate Communications, Mrs. Hakama Sidi Ali, revealed this in Abuja on Wednesday, recalling that the central bank had recently cleared $1.5bn from the backlogs.
On Wednesday, the naira ended trading at 1,410/dollar at the black market and N1,492 at the official Nigerian Autonomous Foreign Exchange Market, according to data compiled from the FMDQ Securities Exchange.
The naira's gain at the official market represents an increase of N68 or 4.5 percent from the N1,560/$1 recorded on Tuesday at NAFEM, and a gain of 13.5 percent or N190 at the black market.
According to The PUNCH's research, the exchange rate has been increasing recently as speculators start to sell their dollar stocks, following reduced demand by potential buyers due to CBN clampdowns.
Recent circulars by the Central Bank of Nigeria in the past few weeks and months have helped to stop illegal activities and close loopholes previously exploited by currency speculators and fraudsters.
Additionally, recent crackdowns on the operations of illegal BDC operators in Lagos, Abuja, and Kano by the Economic and Financial Crimes Commission have helped to decrease the volatility of the naira.
A Bureau De Change Operator at Wuse 2, Abuja, Ibrahim Yahu, mentioned on Wednesday that the greenback was bought at the rate of N1400/$1 and sold at N1500/$, allowing operators to make a spread of N100/$1.
He said, “The highest I can buy from you is N1400/$ but we are selling at N1500/$.
He noted that some persons bought at the rate N1,300/$ during the daily trading activity.
Another currency trader, Malam Musa Yahyah, at the Central Business District in the FCT, expressed mixed feelings about the new rate, stating that some traders were forced to sell at loss due to a waning demand for the greenback.
In Lagos, a currency trader at Allen Avenue, Ikeja, Mustafa Ibrahim, stated that the reduced demand for the dollar, partly caused by the commencement of dollar sale to BDC operators at the rate of 1,300/dollar, had further weakened demand for the greenback.
He said most traders bought and sold the dollar at N1350 and N1450 on Wednesday. According to Ibrahim, the local currency may reach a new high of 1,200/dollar in weeks if the trend continues.
Also, Mallam Abubakar Salisu, who sells FX at the Murtala Muhammed Airport, Lagos, said the naira-dollar exchange rate at the black market had been fluctuating lately due to the activities of the CBN and the EFCC.
“As of today, many of us bought and sold at 1,400/dollar and N1,450/dollar. The rate is still volatile but many of us are anxious to sell because we know the dollar will soon crash. The only challenge is that many us bought the FX when the rate was around N1,600, so we are concerned about the loss. We are seeking to minimize the loss,” he said.
At the same time, the highest price for the spot on Tuesday was N1,620 per dollar while the lowest was N1,350/$1.
The amount of money traded in the foreign exchange market increased to $268.29m from $195.13 million on Tuesday.
On Tuesday, The PUNCH reported that forex turnover at the official foreign exchange market increased to $11.43bn in two months following new reforms by the CBN.
An examination of reports and data of daily forex transactions recorded on the website of FMDQ Securities showed that the amount increased by 185.75 per cent or $7.43bn between January and March 15th, 2024.
The improved availability of funds at NAFEM resulted from a directive by the CBN on February 1, 2024, instructing banks to sell their excess dollar stock to improve liquidity in the FX market within 24 hours.
The naira has continued to increase in value against the dollar following some foreign exchange measures put in place by the Central Bank of Nigeria.
Some of the FX changes include efforts to achieve a willing buyer-willing seller market; removal of all limits on margins for the International Money Transfer Operator remittances; introduction of a two-way quote system and overall reforms in the Bureau De Change segment of the market to restore stability, improve transparency, boost supply, and promote price discovery in the Nigeria Autonomous Foreign Exchange Market.
The pressure on the naira/dollar exchange rate is starting to decrease as Nigeria’s external reserves have continued to grow in one month.
Information from the CBN showed that the foreign currency reserves increased by 3.62 per cent to $34.37bn as of March 12, 2024 from $33.17bn at the beginning of February 2024.
The CBN recently announced a significant increase in Diaspora remittances, rising by 433 per cent to reach $1.3b in February, compared to $300m in January.
CBN announces
At the same time, acting CBN Director, Sidi Ali, said the clearing of the FX backlogs followed a notable increase in external reserves.
She mentioned that the month-on-month increase in the reserves was due to a marked advancement in remittance payments by Nigerians abroad, as well as increased purchases of local assets, including government debt securities, by foreign investors.
Ali stressed that careful efforts were made to settle these outstanding transactions.
The apex bank stated that independent auditors from Deloitte Consulting carefully examined each transaction in the $7bn FX backlog, ensuring that only legitimate claims were honored.
It mentioned that all invalid transactions were immediately flagged for further examination by relevant authorities.
Cardoso recently emphasized the importance of clearing the FX backlog to restore credibility and confidence in the Nigerian economy.
According to the CBN statement, the resolution of the foreign exchange transactions backlog aligns with the comprehensive strategy outlined during last month’s Monetary Policy Committee meeting.
The main goals include stabilizing the exchange rate and reducing imported inflation, with the aim of strengthening confidence in the banking system and stimulating economic growth.
Cardoso reportedly talked about the expectations during a phone call with foreign investors, emphasizing continued growth in Nigeria's foreign currency reserves and better liquidity in the foreign exchange market.
Cardoso said it was important to have an independent process to verify the obligations, and now all genuine transactions have been cleared, removing doubts about the country's ability to meet its obligations.
The CBN's action marks a significant moment in the financial industry, leading to a more stable and resilient economy.
As the country progresses, clearing the FX backlog boosts confidence for both investors and businesses.
The Central Bank of Nigeria has announced that it has settled all valid foreign exchange backlogs, fulfilling a commitment to address a $7bn backlog of claims.
The clearance of the foreign exchange backlog is part of the strategy outlined in the recent Monetary Policy Committee meeting to stabilize the exchange rate and reduce imported inflation. Cardoso stressed the need for sustained growth in Nigeria's foreign currency reserves and improved liquidity in the foreign exchange market during the MPC meeting and a subsequent call with foreign investors.
Banks
Some banks are asking customers to provide tax clearance for the last three years when applying for Form A.
Form A is an application form from the Central Bank of Nigeria for service transactions like school fees and medical fees, allowing customers to buy funds at the CBN or interbank rate for these payments.
Standard Chartered informed its customers that they would need to submit their TCC for the last three years when requesting foreign currency through banks starting next month.
The notice titled 'Further Update On Tax Clearance Certificate' reminds customers of the requirement to provide an updated tax clearance certificate. Starting April 1, 2024, customers must upload their TCC for 2021, 2022, and 2023 to the CBN trade monitoring system for Form A applications, which will be verified by the state tax authority before approval.
Effective April 1, 2024, customers are required to upload their 3 years TCC for 2021, 2022, and 2023 assessment years for new and existing Form A applications on the CBN trade monitoring system. The submitted TCC will be verified by the state tax issuing authority before approval.
Fidelity Bank and Stanbic IBTC have also instructed their customers to submit their TCC for foreign exchange requests, including Form A applications.
A Tax Clearance Certificate is proof of compliance with tax obligations, ensuring adherence to the regulations in the Personal Income Tax Act, Cap P8, LFN 2004.
Goldman Sachs, a global investment bank, recently predicted that the Naira would increase to N1200 per US dollar in twelve months.
Goldman Sachs analysts, Andrew Matheny and Bojosi Morule, revealed this in their recent analysis of Nigeria's current economic situation.
The US-based financial institution pointed out the recent upward adjustment in interest rates by the monetary authorities in Nigeria and a recent N1.6 trillion bill auction by the central bank as signs that the country is changing its previous unorthodox policy regime that restricted the naira from freely trading.
Goldman Sachs stated, “These developments have led us to adopt a positive outlook for the Naira, which our FX strategists anticipate will appreciate to NGN 1200 compared to the USD in 12 months.
Goldman Sachs supported the recent monetary policy by the Nigerian government to rescue the Naira, which was described as 'cheap' or undervalued.
The analysts believed that the country's foreign exchange crisis would be resolved if the government implemented monetary policies.
The Central Bank of Nigeria has introduced several monetary policies.
The most recent was the new draft guidelines for Bureau de Change operators in the last two months.
Also recently, Binance, a cryptocurrency, stopped its Naira transactions due to regulatory pressure from the Nigerian government.
