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Ban on foreign cash deposits creates four Forex Market segments

By on August 11, 2015

The recent decision by the Central Bank of Nigeria (CBN) to proscribe the acceptance of forex cash deposits by commercial banks operating in the country has created four forex market segments.

The Managing Director, Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, disclosed this in his monthly economic news and views titled, “Market versus Economy,” presented at the Lagos Business School’s executive breakfast meeting.

“The forex market is now segmented into four layers. The differential between the segments will widen as the ability to move between segments becomes more difficult and risky. The desperation for electronic dollars will push that market to N250. Cash dollars will be at N240. The magnitude of the currency value adjustment will be dependent on when the subsidy is removed,” he explained.

However, speaking to THISDAY yesterday, Rewane threw more light on the four forex market segments. He listed them to include the interbank foreign exchange market (IFEM), the BDC rate, rate at which exchange proceeds are converted into naira and electronic transfer rate.

“The electronic transfer rate and the cash rate were the same before. But now that banks will not accept dollar cash again, when I get dollars, for me to transfer it is going to be too costly.

“So in all of these, there is a massive premium on electronic cash transfer,” he insisted.

Continuing, Rewane stated in the LBS presentation that inventory levels are low in the country, adding that exchange rate volatility and uncertainty were causing confusion for retailers.

According to him, it is not clear “when is the favorable time to import. Retailers don’t want to order too much and end up sitting on stocks.”

“Economic activities will remain tepid until there is clarity on fiscal policy direction. Clarity in policy direction and appointment of ministers will boost activities,” he added.

Meanwhile, the CBN yesterday reiterated that all legitimate requests for foreign currency for eligible transactions, normally referred to as “invisibles”, such as remittances for school fees, student maintenance allowances, BTA, PTA, medical and other eligible transactions, shall be fully met at the official/interbank exchange rate.

A statement from the central bank stated that already all the legitimate demand for such transactions through recognised channels have so far been fully met by CBN.

“The CBN hereby directs all authorised dealers in foreign exchange in Nigeria to henceforth treat as top priority all legitimate demand for foreign exchange for eligible transactions.

“The CBN once again advises individuals that wish to source foreign currency for such eligible transactions to approach their banks with their legitimate demand as the CBN has made adequate provisions of foreign currency for all such legitimate and eligible purposes.

“Furthermore, holders of naira denominated debit and credit cards shall continue to have access to the use of their cards at ATM machines in any part of the world but subject to the annual limit of $50,000. ATM withdraws shall continue to be a maximum of $300 per day,” it added.

In a related development, Guaranty Trust Bank Plc (GTBank), on Sunday informed its customers of its decision to reduce the daily international spending limit on their naira MasterCard to $300.

“This is to inform you that we will commence the sale of Personal and Business Travel Allowance (PTA & BTA) from Monday, 10th August, 2015, at select branches across the country. This means that all intending travellers can now purchase foreign currency at designated GTBank branches up to a quarterly limit of $5,000 and $4,000 (for BTA and PTA respectively) or its equivalent in pounds and Euro.

“However, in view of the increased difficulty in sourcing foreign currency to settle international transactions on naira MasterCards, we have reduced the daily international spending limit on your naira MasterCard to $300.This means that you can only spend up to $300 daily when using your GTBank Naira MasterCard for international payments via POS and online.

“You will, however continue to have the option of paying for medical bills, school fees, mortgages and credit cards using Form A, as these are eligible transactions for foreign currency. Simply visit any GTBank branch to complete a Form A along with the required documents to make these payments,” the bank stated in a notice to customers.

 

[ThisDay]