There are growing worries that the growing gap between the dollar and the naira could be causing a fresh wave of forex round-tripping.
According to Nairametrics, roundtripping is the practice of buying foreign currency through legal means and then selling it for a profit on the black market at a better rate.
As surging demand continues to outpace supply, the value of the naira against the dollar has declined past N1000/$1 during the previous week.
This uncomfortable pattern has raised worries about a possible rise in currency roundtripping activities, as some forex purchasers may be abusing the Interbank Foreign Exchange window for their own financial benefit, raising concerns about potentially disastrous economic repercussions.
The Central Bank of Nigeria’s managed float system, which will combine the I&E and black-market windows on June 14, 2023, was first touted as the long-awaited answer to the ongoing exchange rate imbalance.
However, after the first honeymoon period, market forces have taken control as the black-market rate, which briefly converged in June, is now about 20% higher than the official rate.
The official exchange rate is N770/1$, whereas the black market rate is N1,000/$1, indicating a large difference of N230/$1.
In light of this context, concerns are developing that some consumers might be engaging in roundtripping by taking advantage of the I&E window.
The big difference could be dangerous for the country’s monetary stability, according to sources in the financial industry.
According to one of our sources, currency roundtripping may be a key factor in the market distortions that are already present, aggravating the dollar’s scarcity and the rising Naira-to-Dollar rate seen in the FX market.
As a result, legal enterprises that need to obtain foreign currency for transactional necessities face difficulties.
However, none of the sources offered any evidence to support their claims when requested to do so.
These allegedly roundtripping actions have an impact on several economic sectors, including manufacturing and importing.
Uncertainty is introduced by the unstable exchange rate environment, making it challenging to plan effectively and causing disruptions throughout the supply chain.
Some of the sources also urged the government authorities and financial regulators to keep a close eye on the situation and implement the appropriate sanctions on investors who were engaging in illegal roundtripping.
According to one of the sources, “urgent oversight and surveillance of the forex market are imperative with the resumption of the Acting CBN Governor, Mr. Yemi Cardos.”
As he moves through today’s Senate confirmation hearing, it is also urgent to toughen up on anybody caught engaging in these activities.
