CBN moves to save Naira, stops dollar auctioning

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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