By Babajide Komolafe
LAGOS â€” THE Central Bank (CBN) has issued guidelines restricting foreign exchange demand at the Wholesale Dutch Auction System (WDAS) auctions.
In a circular to â€œAll Authorised Dealersâ€ signed by Director Trade and Exchange Department, Alhaji Batari Musa, and entitled â€œRe: Revised Guidelines for the Operation of the Foreign Exchange Market: Wholesale Dutch Auction Systemâ€, the CBN limited foreign exchnage demand by banks to one tranche of bids per day.
Previously banks could submit three tranches of bids per day. The circular stated, â€œThis is to inform all Authorised Dealers that paragraph 3 (b) of the circular Ref: TED/FEM/FPC/GEN/01/110 of July 8, 2009 on the above subject has been amended as follows: â€œAuthorised Dealers shall submit bids for only one (1) tranche per auction, while the Central Bank of Nigeria reserves the right to reject any bid that is deemed to be unrealisticâ€ This amendment takes immediate effect.â€
A senior bank treasurer who spoke on condition of anonymity told Vanguard that the circular is a subtle measure by the apex bank to control daily foreign exchange demand by banks. He said that previously banks could receive foreign exchange bids from customers and submit them in three tranches before the close of bidding on each foreign exchange auction day.
Consequently, banks could collate foreign exchange bids every two or three hours and submit to the CBN. But with the new measure, it means that banks can only submit one tranche of bids and hence they cannot wait to receive bids every two or three hours from customers. The implication is that customers whose bids do not make that one tranche would wait till the following day to have their bids submitted by their banks.
He further explained that with the measure, foreign exchange end users would not be able to use the exchange rate of the day to determine their bid rate and hence temper the upward pressure on the naira exchange rate.
Vanguard investigation reveals that foreign exchange demand have risen sharply since the introduction of the WDAS on July 13th. From $960.96 million in the six auction sessions held in July prior to the introduction of WDAS on July 13th, foreign exchange demand rose to $1.965 billion in the four sessions held under WDAS indicating 104 per cent increase.
Also average demand per auction session conducted by CBN jumped to $491.3 million per session from $160.16 million indicating 206 per cent increase.