The naira is quickly becoming the world’s most erratic currency, according to Bureau De Change (BDC) operators operating under the auspices of the Association of Bureau De Change Operators of Nigeria (ABCON).
They pointed out that the local currency has been struggling lately and has been significantly impacted by various conflicts, including those involving commerce, exchange rates, and speculative attacks.
ABCON President Aminu Gwadebe revealed this and acknowledged that the foreign exchange (forex) market is having some difficulties in an exclusive interview with Nairametrics over the weekend.
There has been a lot of instability in the Nigerian foreign exchange market lately, and licensed currency traders have been complaining about a lack of foreign exchange and accusing commercial banks of failing to sell them dollars.
In his statement, Gwadebe stated, “Unfortunately, the Naira is going through an uneven journey plagued by various wars, including trade wars, rate wars, and speculative attacks, and as a result, it is becoming the most unpredictable currency in the world.”
Issues impacting the foreign exchange market
The head of ABCON outlined some issues affecting the foreign exchange market, such as market volatility, regulatory changes, technological improvements, and uncertainty in the global economy.
According to Gwadebe, market volatility has grown, and trade volumes have declined due to economic slowdowns in key markets such as the US, Europe, and China.
Additionally, he said that the BDCs’ recapitalisation strategy has affected market liquidity and increased compliance costs for FX brokers.
He concluded that these difficulties have led to increased regulatory scrutiny, increased trading costs, decreased liquidity, and increased market volatility.
“The foreign exchange (forex) market is in fact facing challenges,” stated Gwadebe. Here are a few important issues:
- Uncertainty in the World Economy
Market volatility has grown, and trade volumes have fallen due to economic slowdowns in key economies like the US, Europe, and China.
- Modifications to Regulations
Tighter rules, such recapitalisation, have affected market liquidity and increased compliance costs for forex brokers.
The US Commodity Futures Trading Commission’s (CFTC) rules regarding trade tariffs and leveraged FX trading also impacted the market.
- Developments in Technology
While automated trading technologies and the growth of electronic communication networks (ECNs) have improved market efficiency, they have also created new hazards, including flash collapses.
In addition to opening up new trading opportunities, the increasing use of electronic frameworks, artificial intelligence (AI), and machine learning (ML) in forex trading has sparked worries about market manipulation.
- Market Unpredictability
Market volatility and currency value changes result from increased geopolitical tensions, such as the growing mistrust in global contacts.
Due to portfolio investors fleeing to a safer haven, the continued tariffs imposed by the United States have further added to market turmoil.
Addressing Forex Volatility
ABCON President Gwadebe proposed key measures to stabilize the naira. He urged the government to increase the bank liquidity ratio to 40%, enhance exchange rate unification, improve transparency, and make BDCs direct agents of IMTOs.
The CBN’s removal of forex restrictions aims to unify rates and reduce volatility. Transparency in demand-supply trends can curb speculation. Expanding market liquidity by allowing broader participation and boosting external reserves through investment and exports can further stabilize the currency.
Banks have responded by restricting international transactions. Gwadebe emphasized staying informed, adapting to regulations, and using risk management to counter negative perceptions.
What To Note
As per an earlier report by THE NEWS CHRONICLES, BDC operators blamed the massive demand for foreign cash resulting from the windfall from certain contractual payments and releases by certain Federal Government agencies for the naira’s collapse in the foreign exchange market.
Gwadebe acknowledged that the forex market is experiencing some previously unheard-of attacks, but he added that the regrettable event has once again reinforced the necessity for regulators to be persistent in enforcing reforms and policies in a volatile currency market.
He had admitted that these sporadic foreign exchange market shocks are temporary, arbitrary, and a burble that will eventually burst.Â
