Currencies / 12 January 2016, 06:11am / Camillus Eboh and Julia Payne
Abuja - Nigeria's central bank is halting dollar sales to non-bank foreign exchange operators and letting commercial banks accept dollar deposits with immediate effect, its governor said on Monday, in an effort to shore up dwindling foreign reserves.
Africa's biggest economy, an Opec member state that depends on oil sales for about 95 percent of its foreign reserves, has been hammered by a collapse in global oil prices, which has triggered a slide in its naira currency.
Godwin Emefiele said the sale of foreign exchange to bureaux de change would be discontinued because they were using up the country's foreign reserves for illegal transactions and selling the dollar at 250 naira compared to the official central bank rate of 197 naira.
The currency hit a record low of 282 per dollar on the unofficial market on Monday after the central bank's announcement.
Emefiele said foreign reserves stood at around $28 billion compared with $37 billion in June 2014, and that the bureaux were depleting them at a rate of $28.4 million per week.
“This is a huge haemorrhage on our scarce foreign exchange reserves, and cannot continue,” Emefiele told a news conference in the capital Abuja.
The decision to allow commercial banks to accept cash deposits of foreign currency reverses the restriction imposed last year when such deposits were banned to curb currency speculation.
It comes days after a visit by the head of the International Monetary Fund, Christine Lagarde, when she told lawmakers that the IMF did not support foreign exchange restrictions.
“By curbing the official sale of foreign exchange (FX) to BDCs, the CBN is probably signalling its tolerance for at least a segment of the FX market to be more market-determined, with the exchange rate based on demand and supply,” Razia Khan, head of Africa Research for Standard Chartered bank, said.
“The move to allow commercial banks to accept US dollar deposits may also be a step towards a liberalisation.”
Nigeria is facing its worst economic crisis in years as it must import most of what it consumes due to limited manufacturing.
Emefiele said monthly foreign earnings had plummeted as low as $1 billion from highs of $3.2 billion while demand for foreign exchange has risen sharply over the past decade.
“The last time we had oil prices at about $50 per barrel for an extended period of time was in 2005. At that time, our average import bill was 148.3 billion naira per month... Our average import bill for the first nine months of 2015 is 917.6 billion naira,” he said.
To avoid devaluing the currency, a stance so far supported by President Muhammadu Buhari, the central bank adopted increasingly stringent foreign exchange rules last year and effectively banned dollar access for the purchase of 41 items, which has also been criticised at the World Trade Organisation by the United States and the European Union.
Alan Cameron, economist at Exotix, said the decision “looks like an effort to draw volumes back to the more tightly regulated official market”.
“(It) will be difficult to establish confidence in the official rate. At the same time, any with access to hard currency will have a strong incentive to channel them through the parallel market.”