Business News
I&E Window Records $788 Million in Turnover After Currency Unification
The Central Bank of Nigeria (CBN) unified all official exchange rate windows on June 14, 2023. This led to a sharp decline in the exchange…
The Central Bank of Nigeria (CBN) unified all official exchange rate windows on June 14, 2023. This led to a sharp decline in the exchange rate, which has since fluctuated between N663/$1 and N770/$1 as traders seek a fair price.
The FMDQ publishes the daily turnover of foreign exchange traded, but this does not reflect the actual amount of foreign exchange bought and sold in general. However, it does provide a proxy for the level of liquidity in the Investor and Exporter (I&E) Window.
Cumulatively, $788 million has been traded in the I&E Window since the unification of the exchange rate was announced. This suggests that there is still a significant amount of demand for foreign exchange in Nigeria, even at the lower exchange rate.
The CBN’s decision to unify the exchange rate is a positive step towards a more market-driven foreign exchange regime. It remains to be seen how the market will react in the long term, but the initial indications are that the unification has led to increased liquidity and price discovery in the I&E Window.
In Search of Price Discovery
The exchange rate between the naira and dollar has experienced volatility since its introduction a week ago falling 29% to N664/$1 on the first day.
- It fell further to N702/$1 before closing the week slightly stronger at N664/$1.
- The I& Window closed the Monday at N770.3/$1 and on Tuesday, June 20th at N756.6 continuing with the volatility that we have experienced since the unification started.
- The official exchange rate also achieved parity with the black-market rate for the first time since 2018 when it was around N363/$1.
- The highest daily rate sold at the I&E window is also N790/$1 reported on Monday, June 19th, 2023.
Parallel market dealers lowered their prices to match the official rate, which caused the exchange rate to drop to as low as N780 to $1.
However, the rate is exchanged at roughly N767/$1 on the cryptocurrency exchange Binance, where the currency is sold on a peer-to-peer basis.
The external reserve is now approximately $ 34.49 billion, down from $34.65 billion on the day the unification was announced, according to a cursory check of the central bank website.
Price Discovery: The recent market fluctuations can be attributed to the ongoing process of market discovery.
- The Central Bank of Nigeria’s efforts to enhance transparency and liquidity may have caused exchange rates to fluctuate as market forces adapt to the new policy framework.
- However, this period of adjustment and volatility is anticipated to ultimately result in a more stable and efficient foreign exchange market.
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