On the 7th of May, I posted my thoughts on the incredulous role of the parallel market in Nigeria. I titled it “Is It An Official Scam?
Today, the CBN Governor announced a change in how forex market is to operate in Nigeria. The full speech which I posted earlier today finally answered puzzles which left me gobsmacked.
Believe it or not, Nigeria’s Central Bank Governor Godwin Emefiele revealed to journalists in Abuja today how his new forex policy would work. He said:
The Central Bank of Nigeria will select a group of around 10 primary dealers through which the naira will be traded. There will only be one exchange rate and the bank will intervene in the market “as the need arises.”
I can understand the retention of $38 oil benchmark.
What gets to me is the CBN approved N197/US$ currency conversion rate.
Can any economist explain to me the real idea behind having a CBN currency conversion rate and a parallel market rate?
Does this apply in America, Germany, China or the United Kingdom that I am unaware of? I am totally baffled.
What is the point in having one rate for the government and another rate, a higher one for the citizens the government is supposedly meant to look after? I am desperate to understand this logic. This is incredulous. It all looks shady to me. Banks getting the dollar at a reduced rate, pass it on to dealers at a higher rate. They make a profit from the added margin.
The Bureau de change operators add their margin before it eventually gets to Nigerians on the street. It smells of currency trading to me at the highest level – the Central Bank of Nigeria. CBN is proud to announce the Naira is stable at N197/US$ while it yo-yos in the black market which produce the alternative rate officially christened the parallel market rate of N321/US$.
What is stable in having a disparity of N124/US$?
I just don’t get it and I really want to.
Please help me to understand the difference between the CBN and parallel rates. Simple!