A member of the Monetary Policy Committee (MPC) of Nigeria’s apex monetary authority, the Central Bank of Nigeria (CBN), Mike Obadan, has alleged that eminent Nigerians and agents are behind the round-tripping and hoarding witnessed in the country’s foreign exchange (FX) market.
Confiance News gathered from an Inside Business report on Tuesday.
“Hoarding of forex is still more pronounced in the FX market amidst racketeering and round-tripping, mostly perpetuated by respectable Nigerians and economic agents with ulterior motives to manipulate dollar prices in the foreign exchange market,” he disclosed.
According to Investopedia, a financial media website, Round-trip trading, or “round-tripping,” usually refers to the unethical practice of purchasing and selling shares of the same security over and over again in an attempt to manipulate observers into believing that the security is in higher demand than it actually is.
“By creating fake trading volume, round-tripping can also interfere with technical analysis based on volume data,” it explained.
Obadan who did not mention the names of the prominent Nigerians, said that explains why the apex bank could not resume sales of forex to the Association of Bureaux de Change Operators of Nigeria (ABCON), besides uncertainty in the market.
This is the current situation with our exchange rate system, Obadan stressed.
“They have refused to offload to the foreign exchange market as it were. Even if the CBN resumes sales of foreign exchange to the BDCs, the situation will not change for a simple reason,” Obadan said.
He lamented that the major sources of forex to the country’s coffers were not yielding enough FX, including crude oil sales, non-oil sector and capital inflows, adding that proceeds from some of the sources have virtually declined.
“These sources in recent times have not improved. But at the same time, you find out that the demand is skyrocketing and Nigerians at this point in time, still want to buy all kinds of goods and services from abroad, including education services, medical tourism and all that.
“The import structure or the production structure of the country is highly import dependent and Nigerians have an excessive appetite for the importation of kinds of goods and services under such circumstances when foreign exchange earnings have reduced, you find the demand for foreign exchange skyrocketing,” he explained.
Obadan pointed out that the major problem of forex illiquidity was the comatose of the refinery, lamenting that the quantity of crude oil export sold abroad might be less than one million barrels per day of crude oil export out of the total production of 1.2 million barrels per day against the Organisation of the Petroleum Exporting Countries (OPEC) quota of 170 million barrels.
“You find out that whatever is sold by way of direct export sales is used as we are told by NNPC Limited to import petroleum products and in addition it pays subsidy. Under the circumstances, foreign exchange accretion is virtually not there, other than from perhaps, the little quantity from the non-oil sector.
“So, invariably there is excessive demand for foreign exchange against the backdrop of very low foreign exchange earnings and low capital inflow and heightened capital flights against the backdrop of monetary policy normalisation in the advanced countries, particularly the U.S,” he added.
