The Governor of Central Bank of Nigeria (CBN), Godwin Emefiele,
railed off against the parallel market alleging that it is a tainted
market where illegal foreign exchange transactions, which include
sourcing of forex cash for purposes of offering bribes and other corrupt
activities, take place.
While disclosing that the parallel market is no more than 5% of the
forex market, Emefiele said that Nigeria’s official exchange rate should
not be determined by the rate in that market where the naira has
weakened to a 3-month low.
This was disclosed by Emefiele, on Tuesday, November 24, 2020, during
a virtual briefing in Abuja after the Monetary Policy Committee
meeting.
The CBN Governor expressed his disappointment and frustration at the
rhetoric of some analysts who say that the parallel market rate of
N480/$1 is the exchange rate.
What he said
Emefiele, in his briefing, said, “And indeed I heard some
analysts talking about the parallel market saying that exchange rate is
at N480. I want to say this, that it is unfortunate and really unfair
that even analysts who are supposed to know will play with numbers and
begin to determine the exchange rate of our currency using parallel
market rate.
“For the information of everybody, parallel market as far as we
know it and the data that we have, is a shallow market in Nigeria with
no more than 5% of market share. Parallel market and quote me is a
tainted market in Nigeria, where people who desire to deal in illegal
foreign exchange transactions including sourcing of FX cash for purposes
of offering bribes, corruption, that is where they deal.
“And that is where people who are supposed to understand the
implication of these on the economic activities on our country begin to
go to television and begin to say our exchange rate is N480. This very
unfortunate,” he added.
What we know
Whilst forex is obviously a conduit for illegal
transactions, it cannot be attributed alone to the parallel market.
Illegal transactions disguised as legal also take place in the official
market.
Suffice to add that the central bank shares most of the blame in the
huge exchange rate disparity between the official and parallel market
rates due to some of its policies. For example, there are restrictions
on third party transfer of forex from one account to another while
importers have limited room to source forex.
Forex illiquidity in the official market also means most businesses
have no option but to source forex in the parallel market where it cost
more. Not doing so means they won’t be able to meet their obligations
such as servicing loans in forex, paying suppliers and honouring
technical contracts.
Disparity widens
According to data from abokifx.com, the naira exchange stood at
N483/$1 on Tuesday at the parallel market, whereas it closed at
N385.50/$1 on Tuesday at the investors and exporters window, according
to data from FMDQ. The official CBN rate still remains N379/$1.
The exchange rate disparity keeps widening as demand pressure increases at the parallel market on account of low dollar supply.
Forex scarcity and some of CBN’s policies like those on export
proceeds, barring of third parties from buying forex routed through Form
M and others, have seen importers and manufacturers move to the
parallel market to meet part of their demands.
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