Author Topic: FOREX : CBN TO CLAMP DOWN ON PARALLEL MARKET OPERATORS  (Read 1023 times)

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FOREX : CBN TO CLAMP DOWN ON PARALLEL MARKET OPERATORS
« on: January 19, 2009, 06:10:52 PM »
  Forex : CBN to clamp down on parallel market operators
By Ayo Olesin

In a further attempt to curb speculative activities in the foreign exchange market, the Governor of the Central Bank of Nigeria, Prof. Charles Soludo, has warned that the licenses of bureaux de change operators that sold foreign exchange sources from the official market above the two per cent maximum spread, will be revoked.

Soludo handed down the warning on Friday during a meeting with representatives of Association of Bureaux de Change Operators of Nigeria, where he also hinted that tighter controls would be exercised with respect to BDC operations.

The CBN governor expressed misgivings over recent activities of BDC operators, who have been making a spread of between seven and 10 per cent on transactions in recent weeks following the rapid depreciation of the naira, induced by the bank.

On Friday, BDC operators sold one United States dollar at between N157 and N162 in Lagos, and bought for N150. The British Pound sterling sold for N239, while the euro sold for N200.

The increased opportunities for arbitrage in the forex market had seen a rapid rise in the number of BDC outlets operating in the market doubling to almost a thousand, with some BDC operators opening up to six outlets in the past one month alone.

Soludo had warned banks last Tuesday not to engage in forex speculation, which he said would result in the suspension of any defaulting bank from the forex market.

The CBN also issued new forex market guidelines after an emergency meeting of the Monetary Policy Committee on Wednesday, which include the reintroduction of the Retail Dutch Auction System to replace the Wholesale Dutch Auction System, effective on Monday (today).

Under the RDAS regime, banks and other authorised dealers are no longer allowed to bid for forex on their own accounts, but on behalf of customers. The CBN said in a circular sent to authorised dealers last week, that all bids must be for a minimum of $100,000 and must be backed by cash to be successful.

The apex bank also said funds purchased from the bi-weekly auction should be used for eligible transactions only, subject to stipulated documentation requirements and would not be transferable in the inter-bank foreign exchange market. Unused funds must be returned within five days of purchase, the apex bank added.

In tightening the BDC segment, Soludo also directed the President of the association, Mr. Farouk Suleiman, to warn members to comply with the two per cent spread, adding that the operating license of any BDC caught violating this requirement would be revoked immediately and their names published in the newspapers.

The CBN governor said that the bank would send monitors to the field to ensure compliance with the directive, stressing that tighter controls would be brought to bear on BDC operations.

He also reiterated his warning to speculators and individuals who were taking heavy positions in dollars at whatever price, that they would get burnt as soon as measures being implemented to stabilise the national currency began to take effect in about a fortnight.

Soldo also stressed that the CBN was in a position to cover all forex bids from the bureau de change sector, just as he hinted that the CBN was reconsidering the continued cash sale of forex in favour of electronic transfers, which might require a restructuring of the BDC segment and even consolidation.

He, however, said that the CBN was not opposed to the existence of a significant number of players.

?The CBN believes that there should be free entry and free exit, and that perfect market is one with a large number of buyers and sellers,? he noted.

Aource at the meeting said Sulieman, who blamed the rapid depreciation of the naira in the BDC segment on speculators seeking quick returns, and that the association was in support of the apex bank in its efforts to stabilise the naira and that members would comply with the two per cent spread requirement.

The naira had lost about 20 per cent against the dollar in the last six weeks as the CBN cut supplies to the market as part of measures to curb imports and stave off balance of payment problems for the economy, as the effects of falling oil prices and revenues due to the global financial crises began to take hold on Nigeria.

The CBN, which has $53bn in foreign reserves, is being miserly with releases to the market, and it is seeking to generate more naira from the Federal Government?s dollar revenues, which are set to shrink even further as oil prices failed to recover from steep declines of the recent months and oil exports are set to decline to 1.7million barrels per day in line with the Organisation of Petroleum Exporting Countries new quota which becomes effective at the end of February.

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FOREX : CBN TO CLAMP DOWN ON PARALLEL MARKET OPERATORS
« on: January 19, 2009, 06:10:52 PM »

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