The Central Bank of Nigeria, in a bid to reduce the pressure
on the Naira which had come under speculative attacks in recent weeks, on
Wednesday announced the closure of the Retail and Wholesale Dutch Auction System
of the
foreign exchange market.
The closure, which takes immediate effect, was confirmed in
a statement issued by the Director, Corporate Communications Department, CBN,
Mr. Ibrahim Mu’azu.
WDAS is a foreign exchange system introduced in February
2006 that allows the CBN to receive bids from authorized dealers for purchase
of forex.
The Authorised Dealers on behalf of Bureau De Change and
other end users of forex like corporate organisation and importers will submit
bids to the CBN for purchase of foreign currencies during an auction.
Once their bids are successful, the dealers then sell the
dollars to the BDCs and other end users. Under the WDAS the bids submitted by the authorised dealers
need not match the total request by its end users.
On the other hand, the RDAS is based solely on actual demand
of forex by the end users of the forex. As such, the authorised dealers will only bid for forex
based on the number of actual request it has received from its end users.
While this approach has helped to meet the foreign exchange
demand within the last few years, the process had been abused by speculators in
the foreign exchange market in recent times.
With this move, the apex bank would no longer sell foreign
exchange directly to the BDCs as they would now be required to channel all
forex demands to the interbank market through Deposit Money Banks.
Explaining the reason for the closure, the apex bank said in
the statement that the widening margin in both segments of the market had
engendered undesirable practices such as round-tripping, speculative demand,
rent-seeking, spurious demand and inefficient use of foreign exchange resources
by economic agents.
This, the bank noted, had continued to put pressure on the
nation’s foreign exchange reserves with no visible economic benefits to the
productive sectors of the economy and the general public.
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