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CBN bars interbank forex trading

By Babajide Komolafe
LAGOS — THE Central Bank (CBN) yesterday barred banks from trading foreign exchange sourced from the official market among themselves, in a bid to curb the rising speculative activities in the nation’s foreign exchange market.


In a circular entitled: “Non-Transferability of Funds from Wholesale Dutch Auction System (WDAS) Among Authorised Dealers”, with reference TED/FEN/FPC/GEN/01125, the apex bank said that banks can no longer use foreign exchange sourced from the official market for interbank trading.

CBN

Such funds, itsaid should only be used to meet customers demand for foreign exchange. It also directed that banks should keep separate books for their interbank foreign exchange transactions and WDAS foreign exchange transactions, and make the books available to its examiners.

A CBN source told Vanguard that the ban was occasioned by the failure of banks to disclose their interbank transactions. The banks are supposed to disclose interbank transactions especially those involved with foreign exchange sourced from WDAS but they were not doing this, the sourced said.

Money market operators however said that the apex bank, by this measure, has technically suspended the interbank foreign exchange market, as 85 per cent of interbank foreign exchange transaction is driven by foreign exchange from the official market.

They also said that since banks can now only buy for customers, the apex bank has also technically reverted to Retail Dutch Auction System (RDAS).

Vanguard’s investigation revealed that the CBN realised that the huge volume of demand for foreign exchange at WDAS was driven by speculation as banks purchased foreign exchange to warehouse in anticipation of further depreciation of the naira.

Demand for foreign exchange in the official market has risen more than three fold since the introduction of WDAS on July 13th.

Analysis of the foreign exchange demand and sales in the six auctions conducted by the CBN before and after the introduction of WDAS shows demand for foreign exchange shot up by 351 per cent to $3.16 billion from $861.8 million.

Total amount sold also rose by 56 per cent to $1.19 billion from $$764. Average demand per auction session went up by 313 per cent to $526.7 million from $127.4 million, while average sales rose by 38 per cent to $198.4million from $143.6 million.

This rise in demand occasioned persistent depreciation of the naira in the official market. Prior to the WDAS, the exchange rate was N146.

Hence with the increase to N149.75 yesterday, the naira has depreciated by 375 kobo under WDAS. At the inter-bank market, the naira depreciated by 866 kobo as N156.84 exchanged for one dollar last week as against N148.17 at the beginning of the month.


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