Naira gained against the dollar on Wednesday, 31st January 2024 at the official market after it plunged to a record low of N1,482.57 per dollar the previous day.
The domestic currency appreciated 1.85% to close at N1,455.59 to a dollar at the close of business, data from the NAFEM where forex is officially traded, showed.
- This represents an N26.98 gain or a 1.85% increase in the local currency compared to the N1,455.59 closed on Tuesday.
- The intraday high recorded was N134.07/$1, while the intraday low was N789/$1, representing a wide spread of N720/$1.
- According to data obtained from the official NAFEM window, forex turnover at the close of the trading was $134.07 million, representing 85.36% increase compared to the previous day.
However, the naira closed weaker at the parallel forex market where forex is sold unofficially, the exchange rate quoted at N1470/$1, a drop of 1.02% compared to what it closed the previous day, while peer-to-peer traders quoted around N1526/$1.
Nairametrics reported that the Central Bank of Nigeria (CBN) has released a new circular addressing suspected cases of excessive foreign currency speculation and hoarding from Nigerian banks.
The new circular introduces a set of guidelines aimed at reducing the risks associated with these practices.
The circular, titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” highlights the CBN’s concerns over the growing trend of banks holding large foreign currency positions.
- “The Central Bank of Nigeria (CBN) has noted with concern the growth in foreign currency exposures of banks through their Net Open Position (NOP). This has created an incentive for banks to hold excess long foreign currency positions, which exposes banks to foreign exchange and other risks. Therefore, to ensure that these risks are well managed and avoid losses that could pose material systemic challenges, the CBN issues the following prudential requirements”
In simple English, the central bank believes some commercial banks hold long-term positions in forex with the hope of profiting from it especially when there are forex fluctuations.
- For example, a bank borrows or buys $ 1 million worth of forex but then holds half of it in its position instead of lending it or using it to finance purchases for its clients immediately.
- What this means is that banks can profit from currency depreciation if they buy the forex low and sell high.
This practice, known as speculation, involves buying or holding foreign currencies in the hope of profiting from fluctuations in exchange rates. However, this behavior can expose banks to significant risks, including exchange rate volatility and potential financial losses.
