Category: Foreign exchange

Zimbabwean Dollar Could Collapse, Business Lobby Warns

Zimbabwean Dollar Could Collapse, Business Lobby Warns

A Zimbabwean business lobby group, the Confederation of Zimbabwe Industries (CZI), has warned that the country’s currency could collapse if authorities fail to “implement policy measures that are needed to support it.”
Central Bank Approach Unsettling the Market
In a letter seen by Bitcoin.com News, the lobby group’s president Kurai Matsheza explained that the heavy-handed approach towards the foreign exchange challenge would be unsettling to markets. To ensure that this challenge is fully tackled, the CZI boss insists that measures, which were agreed upon by parties that attended a consultative meeting, must be given time to take effect.
Following the Zimdollar’s collapse in 2008, Zimbabwe switched to a multi-currency system in which the U.S. dollar dominated. However, in 2019 the Zimbabwean dollar or ZWL, which was then at par with the USD, was reintroduced.
Yet nearly two years later, the ZWL/USD exchange rate is now 88:1 on the official market and over 170:1 on the parallel market. Therefore, in order to halt the ZWL’s continuing depreciation on the parallel market, Zimbabwean authorities launched a blitz that has seen law enforcement agencies arrest alleged foreign currency dealers. At the same time, the central bank has been blacklisting individuals that are accused of worsening the Zimdollar’s woes.

However, it is this operation against black market foreign currency dealers that prompted the CZI boss to pen the letter that expresses his organization’s concern with this approach. He said:
When policies fail we should not arrest people, we should correct the policies for efficacy.
He added that the arrests only cause unnecessary panic in the market and erode consumer confidence in government policies.
The Dutch Auction System
Meanwhile, Matsheza insists that only “a true Dutch auction would perform the function of price discovery and pave the way for a more liberal exchange rate regime.” The central bank introduced this auction system as a way of managing the allocation of foreign exchange.
Nevertheless, some companies and individuals have complained that it has taken them several months to get their allocation. These long delays forced companies to seek the resource on the parallel market where the USD is readily found. Although the CZI is not yet calling for an end of this auction system, Matsheza still calls on authorities to ensure the auction system is managed “in the true spirit of the Dutch Auction System.”
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Nigerian Currency Plunges to New Low of 570 — 10% of Value Lost in Under 30 Days

Nigerian Currency Plunges to New Low of 570 — 10% of Value Lost in Under 30 Days

The Nigerian currency, the naira, plunged to a new all-time low of N570 for every dollar on September 16, 2021. This new exchange rate means since August 17, the naira has now lost about a tenth of its value on the foreign currency black market.
Naira Overvalued
In spite of this plunge, which has been attributed to the biting shortage of foreign exchange, authorities insist the naira’s real exchange is unchanged at N411 for every dollar. This means forex buyers that source this commodity on the parallel market are now paying a premium of over N150.
Alternatively, the new parallel market exchange rate of N570 may suggest that the Central Bank of Nigeria (CBN) is now overvaluing the naira by 40%. In fact, this latter point appears to be corroborated by comments made by the CBN governor, Godwin Emefiele. In his comments to a group of investors in late June 2021, Emefiele suggested at the time that the naira was overvalued by 10%. He also hinted that devaluation of the naira was in the cards.
However, since then, the naira’s official exchange rate has remained unchanged while the currency’s rate of depreciation on the parallel market appears to have accelerated, particularly in the past few weeks. Meanwhile, the central bank’s unwillingness to devalue the naira may have created more problems for the CBN — the hoarding of foreign exchange.

Foreign Exchange Hoarding
As an investigation by the Daily Trust found, “some people and corporate entities in Nigeria are now saving their fortunes in dollars.” In its report, the publication quotes Malam Nura, a Bureau de Change operator, who said:
If importers don’t have dollars, and if the naira keeps falling, they may not be able to import and their businesses may be affected. I think this is why they are buying and holding it so that they can have enough for import for a long period.
Bitcoin.com News has similarly reported that Nigerians were accumulating foreign currencies in order to shield their wealth from the naira’s depreciation.
Aside from worsening the country’s already precarious foreign exchange situation, the naira’s continuing depreciation is believed to be fueling Nigeria’s inflation woes. While data shows that the country’s headline inflation dropped to 17.01% in August, a report by Proshare attributes this to “base year effects.”
Regarding Nigeria’s monthly inflation increase, the report concludes that this could be tied to the naira’s “weakness in the forex market” and that this is now “being transmitted into [rising] domestic prices.”
What should the CBN do to stop the naira’s fall? Tell us what you think in the comments section below.

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African Economist Says Regulated Cryptocurrencies Are Reasonable Alternative to Single Trade Currency

African Economist Says Regulated Cryptocurrencies Are Reasonable Alternative to Single Trade Currency

A Nigeria-based research and development economist, Gospel Obele, has called “for a unified regulatory mechanism for cryptocurrency trading.” He adds that such regulation of cryptocurrencies can potentially “complement an African digital currency,” hence this needs to be considered.
Cryptocurrencies Show the Way
In remarks published by Joy Online, Obele insists that cryptocurrencies have already shown how a single currency must function. The economist explained:
Crypto has been able to build a level of singular markets when it comes to digital currency use and trade across borders, and this is a significant philosophy which the [African Continental Free Trade Area] originates. One of the significant issues that the AFCTA presents is an important opportunity for a singular currency in the African Market. We all know because of the different development stages of financial markets in respective member states.
Obele, however, concedes that the adoption of a single digital currency by all African states seems impossible in the short term and may prove to be “very much demanding over time.” Yet, according to him, it is only such a digital currency that provides a “reasonable alternative to reaching that level of synchronization to facilitate trade activity across borders.”

Crypto Here to Stay
As some African central banks contemplate launching their own digital currencies, privately issued cryptocurrencies are already being used as a medium of exchange in some cross-border trades. For instance, in Nigeria, where there is a shortage of foreign exchange, cryptocurrencies like bitcoin are being used as an alternative means of payment. This has helped some import businesses to stay afloat.
However, the growing use of cryptocurrencies when making cross-border payments has seen some central banks impose measures that hinder this practice. Commenting on this, Obele reminded central banks that “cryptocurrency has come to stay.” Therefore, instead of restricting the use of such digital currencies, the economist wants central banks to understand the technology that underpins such digital currencies — the blockchain. He explained:
“So we need to go back to the fundamentals to get things right to be part of the crypto revolution.”
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Annual US Dollar Remittances to Nigeria Surge to $34 Billion but Forex Woes Persist

Annual US Dollar Remittances to Nigeria Surge to $34 Billion but Forex Woes Persist

According to a report, the value of annual dollar remittances by Nigerians working abroad has surged to $34 billion, a figure that easily surpasses the previous record-high of $25 billion. Still, a large portion of the funds doesn’t seem to be entering domestic forex markets.
Target Attained Two Years Ahead of Schedule
The increase, which has been attributed to the Central Bank of Nigeria (CBN)’s “naira for dollar” incentive scheme, once again highlights the growing importance of diaspora remittances to Africa’s most populated country.
As Biodun Adedipe, an economist with Adedipe Associates Limited is quoted explaining, the CBN’s incentive scheme may well be the reason why the target of $34 billion in annual diaspora remittances was reached two years ahead of schedule.
However, despite this surge in remittance inflows, Nigeria continues to grapple with shortages of foreign exchange. Such forex shortages, in turn, contribute to the naira’s continued depreciation as well as the resultant rise in inflation.

Dollars Sent Remain Outside Nigerian Forex Market
In attempting to explain why Nigeria is not fully benefiting from the rising remittances, Adedipe points to the fact that a lot of the dollars sent do not find their way to the foreign exchange market in Nigeria. Adedipe explained:
For example, someone wants to send money to his or her family here in Nigeria, this person, let’s say has $10,000 in the US, and wants to give the naira equivalent to his family member here in Nigeria, ordinarily the way it works in other country is that $10,000 will come into the forex market within Nigeria, and becomes a boost to supply here.
However, this is not happening because “the reality is that in Nigeria’s situation, the dollar doesn’t leave where it is,” Adedipe explains. “The person that provides the naira equivalent here would rather keep the dollar equivalent outside there, so it doesn’t come into the FX market in Nigeria.” According to Adedipe, Nigerian authorities now need to find ways that “make it more attractive for those foreign currencies generated by migrant Nigerian workers to be remitted home.”
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Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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Nigerian Foreign Exchange Crisis: Central Bank Issues Warning to Microfinance Banks

Nigerian Foreign Exchange Crisis: Central Bank Issues Warning to Microfinance Banks

The Central Bank of Nigeria (CBN) has threatened punitive sanctions against microfinance banks that violate the conditions of their operating license through the performance of foreign currency-related transactions. In its latest circular, the CBN claims that microfinance banks have a very low capitalization hence their handling of such transactions threatens the stability of the financial system.
CBN Takes Fight to Regulated Institutions
The new warning from the central bank is the third time since the CBN’s last monetary policy committee meeting that the apex bank has warned or taken action against financial institutions failing to adhere to its forex regulations.
As previously reported by Bitcoin.com News, the CBN announced the end of forex sales to Bureau de Change operators after it accused them of helping to prop up the foreign exchange black market. More recently, the CBN announced the freezing of bank accounts of fintech firms that are similarly accused of fueling the naira’s plunge.
However, in a circular sent to Nigeria’s microfinance banks, the CBN threatens to revoke the operating license of a microfinance bank that is caught red-handed. The circular states:
The CBN will continue to monitor developments in the Microfinance Banking [MFB] sector and apply severe regulatory sanctions for breaches of regulations, including revoking the licence of non-compliant microfinance banks.
CBN’s Ineffective Threats
Still, despite the CBN’s threats and past sanctions, Nigeria continues to experience shortages of foreign exchange on the formal market. In fact, some of the threats appear to have worsened the naira’s already precarious position.
For instance, immediately following the CBN’s decision to bar forex sales to Bureau de Change operators, the naira’s exchange rate on the parallel market plunged to a new low of US$1 for N525. This unofficial rate is 25% lower than the CBN’s official rate of US$1 for N411.

Although it is not immediately clear how the latest threat is going to impact the naira’s exchange rate, it is highly unlikely this will kill the parallel market. It now remains to be seen if the CBN intends to also use its largely ineffective threats policy against commercial banks and other, larger financial institutions.
Is it possible for the CBN to reverse the naira’s depreciation via the use of threats only? Tell us what you think in the comments section below.

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Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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People’s Bank of China Targets Crypto Companies in Shenzhen Crackdown

People’s Bank of China Targets Crypto Companies in Shenzhen Crackdown

The Shenzhen office of the People’s Bank of China (PBOC) has reportedly set out to correct the business activities of about a dozen companies allegedly engaged in cryptocurrency transactions. According to Chinese media, the entities have been targeted in a crackdown on crypto trading in the city.
People’s Bank of China Cracks Down on Coin Trading in Shenzhen
The branch of China’s central bank in Shenzhen is cracking down on illegal cryptocurrency trading, the Chinese business news outlet Cnstock.com revealed Tuesday. As part of the new campaign, the PBOC has “rectified” 11 companies “suspected of carrying out illegal virtual currency activities,” the report detailed.
According to the article, the regulator has also identified a local financial website accused of illegally advertising foreign exchange cash deposit transactions. Furthermore, the People’s Bank of China has investigated eight cases involving illicit online foreign exchange operations and cross-border stock trading.

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