CBN Steps up Rescue Package for Naira, Closes RDAS/WDAS Forex Window
At last, the Central Bank of Nigeria (CBN) in a move to avert the emergence of a multiple exchange rate regime and preserve the country’s foreign exchange reserves announced the closure of Retail Dutch Auction System (RDAS) and Wholesale Dutch Auction (WD
After a cocktail of measures aimed at arresting the sustained fall in naira value, the Central Bank of Nigeria last week announced the closure of the Retail Dutch Auction System ( RDAS) and Wholesale Dutch Auction System ( WDAS) foreign exchange window, thereby leaving the interbank foreign exchange market as the only official foreign exchange market. The decision became necessary given the wide gap between the rates at the CBN official exchange market and the interbank market; a development which analysts said largely fuelled the current speculative activities in the foreign exchange market in the country. For instance, why naira was exchanged for N168-N174 at the CBN official market, the rate hovered around N198-N199 at the interbank market last week.
The apex bank, in a statement signed by Director, Corporate Communications Department, Ibrahim Mu’azu, also admitted this, saying that “the Bank has observed a widening margin between the rates in the interbank and the rDAS window, thus engendering undesirable practices including round-tripping, speculative demand, rentseeking, spurious demand, and inefficient use of scarce foreign exchange resources by economic agents. This has continued to put pressure on the nation’s foreign exchange reserves with no visible economic benefits to the productive sector of the economy and the general public.”
The bank therefore said the closure of the official window was to avert the emergence of a multiple exchange rate regime and preserve the country’s foreign exchange reserves. According to the CBN, henceforth, all demand for foreign exchange should be channeled to the interbank foreign exchange market, while it maintained that it will continue to intervene in the interbank foreign exchange market to meet genuine/ legitimate demands.
Exploring All Options Although the pressure to devalue the naira again became manifest shortly after he came on board, the CBN Governor, Godwin Emefiele has never left anyone in doubt about his commitment to navigate the nation’s financial sector away from the current instability largely precipitated by the fall of oil price in recent times. Until last week’s appreciation of crude oil price at the international market, quite a number of economic watchers had almost given up on Nigeria’s ability to weather the storm, no thanks to the depreciation of the nation’s foreign reserves, the sustained exit of portfolio investors and the attendant fall in the value of naira in exchange for foreign currencies, especially the United States dollar. The Pressure
One primary cause of speculative attacks on the currency has been the window of arbitrage that exists between the different foreign exchange markets – the official, the interbank, and the parallel. While the official rate stands at N168/$, the interbank and the parallel markets hover around N200/$. Calls have come from several quarters to unify the exchange rate markets to put an end to volatility and speculation. But preferring the policy option of price stability above all else, the current monetary policy regime has maintained an artificial or managed ‘official’ exchange rate while the other two markets, driven by demand and supply factors, have reasonably adjusted to new realities.
Although the pressure to devalue the naira again became manifest shortly after he came on board, the CBN Governor, Godwin Emefiele has never left anyone in doubt about his commitment to navigate the nation’s financial sector away from the current instability largely precipitated by the fall of oil price in recent times