[July 28, 2011] Round Tripping - CBN to Increase Dollar Supply to BDCs Tweet Jul 28, 2011 (This Day/All Africa Global Media via COMTEX) -- The Central Bank of Nigeria (CBN) is set to review the limit it set recently for the supply of dollars to the Bureaux de Change (BDC) as it has received the support of the Monetary Policy Committee (MPC) to do so. This is to check the trend of arbitrage or round tripping created by the widening gap between the official and parallel exchange rates. As at last Friday, the dollar was selling for N150.08 at the official market, while it was exchanging for as high as N165/N166 in the parallel market. The apex bank had been defending the local currency at its official market, keeping within the band of +/-3 per cent band above or below N150/$1. But the disparity of N16 between the official and the parallel markets heightened round tripping. Round tripping or foreign exchange arbitrage refers to a process whereby funds are obtained from the official forex market at lower rates, diverted to other markets and sold at a higher rate by forex dealing banks and users. The CBN had in its circular of June 24, 2011, titled: "Foreign Exchange Cash Sales to BDC by Banks" limited the supply of dollars to the BDC to a maximum of $250,000 per week. But at its meeting which ended on Tuesday, the MPC encouraged the apex bank to review the limit. "In view of the widening premium between the Wholesale Dutch Auction System (WDAS) and BDC rates, the Committee encouraged the CBN to review the existing limit. The decision and communication in this regard will be made by the Bank," a source said. Nevertheless, the committee commended the CBN for the limit placed on the foreign exchange sales to the BDCs. THISDAY investigation across the parallel market had shown that the value of the dollar at the "black market" climbed further due to the inability of the apex bank to meet demand at last week's auction at it bi-weekly forex market. Dollar demand at WDAS had exceeded supply by $112 million to $362 million as against the $250 million offered by the regulator. Market operators had attributed the development to the cut in the volume of supply from banks and other autonomous sources. Specifically, they heaped the blame on the misinterpretation of the new CBN policy which restricted the volume of forex supply to BDC operators. They argued that the wide disparity in forex market, especially for an import-dependent economy like Nigeria, portended danger for the system. Experts maintained that the new policy had created opportunity for scarcity, even as they alleged that banks, BDC and parallel market operators were all exploiting the development in the market. The CBN had contended that the policy was not designed to encourage round tripping as it would not have churned a policy that would undermine its mandate of ensuring monetary stability. The apex bank vowed that if it found out that speculators were exploiting the gap that the policy had "unintentionally" created, they would be brought to book. [ Back To TMCnet.com's Homepage ]