Too many dollars in Nigeria’s parallel market

There is over $1billion of excess liquidity in Nigeria’s parallel forex market, the main reason analysts believe accounted for the appreciation of the much embattled Nigerian currency in the last one week.

Aminu Gwadabe, President of Nigeria’s Bureau de Change Association made this known in Lagos.

After trading as high as N240 to the dollar last week, the Naira appreciated today to N216 to the Greenback.

On the official interbank market, the naira traded at 199 at 1130 GMT, near the central bank’s pegged rate of 197.

“Banks are rejecting dollar deposits … they are not able to transfer excess liquidity to their correspondent banks abroad, which is restricting importers from using domiciliary accounts,” said Gwadabe.

The naira had weakened on the parallel market to as much as 242 to the dollar, on persistent dollar shortages. The central bank last month limited importers’ access to dollars on the official interbank market to buy a wide range of goods, in order to save its reserves.

After the restrictions, importers bought dollars on the unofficial market and deposited them in their bank accounts for transfers abroad, Gwadabe said. But now banks are rejecting cash dollar deposits “due to large speculation on the currency,” the chief executive of First City Monument Bank, Ladi Balogun, said on Friday.

Lenders will continue to receive dollar transfers from other banks.

The restrictions have frustrated companies that need dollars for imports.

And the central bank has rejected the idea of loosening the curbs, saying it could not adopt an “indeterminate policy” of currency depreciation and that the naira was “appropriately priced” on the interbank market.