How the Naira Surged to N1,120/$ as CBN Clears FX Backlog

The naira has strengthened against the dollar in the foreign exchange market, following the news that the Central Bank of Nigeria (CBN) has started to clear some of its FX backlog owed to various creditors.

The naira appreciated by 4.27 per cent to close at N1,120/$ on Thursday, November 2,2023, compared to N1,170/$ on Wednesday, November 1, 2023.

The CBN had accumulated a backlog of FX obligations estimated at $6.7 billion due to the decline in oil prices. The payment of the FX backlog, which are contracts to buy or sell foreign currency at a predetermined price and date, was done secretly and gradually, starting from Wednesday.

Three banks, namely Citi Bank, Stanbic IBTC and Standard Chartered Bank, received full payment of their debts, while some other banks received partial payments. The total amount cleared by the CBN is yet to be ascertained, but some sources said it could be as high as $2 billion.

The naira’s recovery was also aided by the increase in the supply of dollars in the FX market, as the CBN resumed its weekly Retail Secondary Market Intervention Sales (SMIS) on Wednesday.

The SMIS is a window where the CBN sells FX to authorized dealers who in turn sell to end-users for specific purposes such as school fees, medical bills, travel allowances, etc.

The naira’s gain was welcomed by many currency traders, also known as Bureaux De Change (BDC) operators, who spoke to The PUNCH. They said the naira was recovering well and expected it to continue to appreciate.

 A trader who gave his name as Awolu said, “The dollar today is N1,040 if I want to sell. I buy at N1,030. The rate has dropped. This morning it was N1,170. It is still falling; it doesn’t have a bus stop yet.”

Another trader, Kadri, said, “Dollar is N1,120. In the morning, it was N1,150.”

However, some BDC operators in Abuja lamented the huge crash of the dollar against the naira, noting that it had put them in crisis and debt.

They said they had bought dollars at higher rates and were now forced to sell at a loss.

A BDC operator at Wuse Zone 4, Abuja, said, “I bought $20,000 yesterday (Wednesday) and now that the dollar has crashed, it has put me in a big trouble. I’m confused right now because I have suffered a huge loss. I need to get someone to buy the dollars before it crashes further.”

The settlement of the FX backlog is expected to have a positive impact on the economy and trade, as it will ease the liquidity constraints faced by many businesses and individuals who rely on foreign currency for their transactions.

The Association of Corporate Treasurers of Nigeria (ACTN), which comprises all corporate treasurers in Nigeria, commended the CBN for its decision, saying it will enhance the credibility and transparency of the FX market. The ACTN also urged the CBN to sustain its interventions and ensure a fair and efficient allocation of FX to all segments of the market.

The CBN’s move to clear the FX backlog came after the Federal Government announced it was expecting $10 billion to clear forex backlogs and stabilise the naira.

The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, said the funds would come from various sources, including the International Monetary Fund, the World Bank, the African Development Bank, the Islamic Development Bank, and the Paris Club.

He said the funds would be used to support the CBN’s efforts to manage the FX market and address the exchange rate volatility.

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