Central Bank of Nigeria Foreign Exchange Market

Nigeria’s case study in how not to float your currency

This is an automatic summary, original reduced by 83%.
Today, the official interbank market closed at 306 naira to $1. But over at Abokifx, the same US dollar sells for 473 naira on the black market-a spread of 55%, enough to tempt even the purest of souls into a game of 'round-tripping'.
The moment the naira was 'floated' on June 20 this year, the authorities then found themselves in a position of not wanting the exchange rate to depreciate past a certain point to avoid the knock-on effect of higher petrol prices.
This meant that the only way to stop the naira floating away beyond reach was to employ the old tricks of hobbling the markets, fixing rates with a mixture of persuasion and mostly threats and generally wrapping the whole thing in a thicket of rules.
On the day the naira was floated in June, the Central Bank of Nigeria intervened in the markets to clear the huge backlog of unmet demand with a mixture of spot rates and forward contracts to be filled up to one year later.
In the absence of the CBN from the interbank market, the money from the oil majors probably made up between 50%-60% of the supply of forex to the market.
Not so fast said the CBN-the oil majors were also instructed that after selling their dollars to petrol marketers, any leftover had to be sold to the CBN. The reason for this directive remains unclear especially as the CBN is no longer intervening in the forex markets.
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Nigeria: Central Bank to sell $100 million to improve dollar liquidity

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