Power and Naira fluctuation menace and the manufacturing sector of the Nigerian economy (2).

With the current fluctuation of the Naira in the FOREX market especially since the beginning of the year, Nigerian companies especially those in the manufacturing sector will be facing some short term exposure, exchange rate risks.

Recently, the Central Bank of Nigeria, led by professor, Chukwuma Soludo, changed its regulated FOREX trading system, from the previous ‘Wholesale Dutch Exchange System’ to the re-introduced retail system, known as the ‘Retail Dutch Exchange system’ (RDES); whereby banks and other licensed foreign exchange dealers, are not allowed to bid for foreign currency on their own account, rather on behalf of clients who would have presented a documented evidence of items to be imported or other transactions in desired foreign currency . This recent development that went into operation on Monday, 19th of January 2009, saw dollar supply exceed its demand for the first time in a while, as only a few banks participated at all in the day one of this newly introduced trading system. This short term measure is aimed at curbing unhealthy speculative demands for the dollar and other foreign currencies at the detriment of the naira, as these foreign currencies naturally go up in price as demand for them exceeds supply. According to CBN’s letter, “GUIDELINES FOR THE OPERATION OF THE FOREIGN EXCHANGE MARKET: RETAIL DUTCH AUCTION SYSTEM (RDAS)” on January 15 2009, addressed to dealers and the public, it is an intervention measure in consideration of recent developments in the Foreign Exchange Market. The previously used ‘Wholesale Dutch Auction System’ (WDAS), is a system whereby authorized dealers bought foreign currency from CBN on wholesale based on anticipated foreign exchange needs of their customers, at such was a speculative market system.