June 16, 2017
Nigeria will end a system of multiple exchange rates that has deterred investment in its stocks and bonds, according to the head of the country's main currency-trading platform.
The central bank and Lagos-based FMDQ OTC Securities Exchange are taking a "phased approach toward a single foreign-exchange market," according to Bola Onadele.
"There is opportunity for convergence and there is no better time for it," Onadele, also know as Koko, said in an emailed response to questions Thursday. "It must be on every participant's radar. However, the multiplicity of rates will be dealt with probably over a period," he said, without giving details of the timing.
In addition to its official interbank rate, which is held near 315 per dollar by the central bank, Nigeria introduced a second exchange rate earlier this year as a way of wooing back foreign investors without officially devaluing the naira. The currency also trades widely in the parallel, or black, market and is sold by the central bank to companies and individuals at varying rates. Both President Muhammadu Buhari and central bank Governor Godwin Emefiele are opposed to letting the official rate weaken, saying it would fuel inflaton.
The central bank introduced the so-called Nafex window for investors, which is overseen by FMDQ and in which the naira has been allowed to drop to its black-market rate, on April 24. The currency was quoted at 371.41 per dollar in the Nafex market on Thursday, while trading at 370 on the street.
While several global bond funds continue to shun Nigeria, saying the many exchange rates make its currency regime too risky, some including Cape Town-based Allan Gray Ltd. have increased their holdings. The Nafex market has been popular enough to get its own set of non-deliverable forwards, which are traded offshore as a way for investors to hedge their positions or take bets on the currency.
Although unorthodox, the central bank's approach may help to solve Nigeria's dollar shortages, Onadele said. Turnover in the market reached about $80 million a day by the end of last week and will continue to grow, he said.
The central bank is participating in less than 20 percent of trades and its share may drop further as dollar liquidity increases, Onadele said.