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Financial market dealers seek unification of Forex rates

By BusinessNews Staff on April 3, 2014

Financial markets dealers have called for the unification of the exchange rate markets.

They argued that a situation where there are different forex rates in the country also contributes to the perennial volatility in the forex market.

Presently, there are four forex market segments in the country. There is the Retail Dutch Auction System (RDAS), otherwise known as the official market, where the price of the naira against the US dollar is heavily regulated by the Central Bank of Nigeria (CBN). Others are the interbank, parallel and bureau de change (BDC) markets.

However, speaking in an interview, the Managing Director/Chief Executive Officer, Financial Markets Dealers Quotation (FMDQ), Mr. Bola Onadele, stressed the need to have a unified market.

“In a situation where central bank rate is at N155, the interbank rate is at N163 –N167, we need to deal with that fundamentally and have a unified official market.

“It needs a lot of restructuring and seminar works organised by the central bank on the best model. I don’t see why the central bank is selling to the bureau de change.
I don’t see how it is adding to the value of the economy. To me, it appears they are worried about the strict cash rate,” Onadele maintained.

He insisted that the country needs just a single official market, where eligible transactions could be processed, adding that the naira should be allowed to react to changes in economic fundamentals.

On its part, the Financial Derivatives Company Limited (FDC) recently faulted the country’s exchange rate management system, saying it is responsible for the sustained downward pressure on the naira.

The Lagos-based financial advisory and research firm also argued that a system that substitutes naira for dollar-derived revenue during the monthly payment of statutory allocations and diverts most of the substituted naira into a monopolistic market for forex contributes to the perennial volatility in the value of the naira.

The firm also stated that the CBN’s monopoly in the supply of both dollar and naira also increases the gap between the official and parallel market rates.

On the other hand, the Managing Director/Chief Executive Officer of the Asset Management Corporation of Nigeria (AMCON), Mr. Mustapha Chike-Obi, recently advocated for a dual exchange rate regime- one for essential goods and the other for non-essential goods. The exchange rate for the importation of non-essential goods, for him, should be prohibitively high to curb penchant for externalities.

[This Day]

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