The New Naira FX Rules Must Consider Variables Like Ports Because They Matter

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October 31, 2023

Waiting for the new rules to do the magic: “The government aims to expand the official market to include all legitimate transactions while cracking down on the illicit parallel market for foreign currency. The government sees a “fair price” for the dollar at N650 to N750. Currently, the official exchange rate is around N800 per dollar.”

Nigeria is planning to introduce new foreign exchange rules to reduce the gap between the official and parallel market rates for the naira, according to Bloomberg.

As part of the move, the government hopes to close the more than 45% gap by year-end, according to Taiwo Oyedele, chair of the presidential committee on fiscal policy and tax reforms. This means clearing a backlog of dollar demand, bolstering the naira forward market, and setting transparent rules for the official market’s operation.

‘…according to the sector operators, the cost of exporting 100 tons of cargo in Nigeria is $35,000, compared to $4,000 in Ghana…. “Today, the leading ports for West Africa are in Cote d’Ivoire, Ghana, Togo, and Benin Republic. All these countries have modernised their port management systems, leaving Nigeria far behind’ – Akinwunmi Adesina, African Development Bank President/ AriseTV.

The Port of Lome is the busiest port in West Africa now because most Nigerian importers prefer it over the decades-old ones in Nigeria; Togo has a population of about 9.3 million people, to Nigeria’s 220 million. So, as we work on the new rules, we have to pay attention to things which continue to hurt the Naira.

Yes, Nigeria has run down most anchors of industrialization and export services to the ground , and that is why this Naira FX fight should not be left for the central bankers. Simply, we have lost grounds on many dimensions of regional comparative advantages, making things exceedingly tough for businesses to export and improve Nigeria’s balance of trade and payment. Left or right, we must reverse those steps in order to advance the economy, and then help the Naira to compete globally in the league of currencies.

We are the architect of our problems. Imagine the other countries mentioned, it is not that we cannot do better than them but we choose to be doing it the wrong way because those positions find joy in our sufferings.

— Atuks (@_atuks) October 31, 2023

Nigeria to Introduce New Rules Before December to Close FX Gaps

Nigeria to Introduce New Rules Before December to Close FX Gaps

By

Samuel Nwite

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October 31, 2023

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Nigeria is planning to introduce new foreign exchange rules to reduce the gap between the official and parallel market rates for the naira, according to Bloomberg.

As part of the move, the government hopes to close the more than 45% gap by year-end, according to Taiwo Oyedele, chair of the presidential committee on fiscal policy and tax reforms. This means clearing a backlog of dollar demand, bolstering the naira forward market, and setting transparent rules for the official market’s operation.

“We think all of that will happen before December, and maybe in a matter of a couple of weeks we will begin to see the results, such that before the end of the calendar year, naira should find its true value, not the one that is being done currently in the parallel market,” Bloomberg quoted Oyedele to have said.

The government aims to expand the official market to include all legitimate transactions while cracking down on the illicit parallel market for foreign currency. The government sees a “fair price” for the dollar at N650 to N750. Currently, the official exchange rate is around N800 per dollar.

Ongoing Efforts to Stabilize the Naira

Since Nigeria floated its FX market in mid-June, allowing the naira to trade more freely against the dollar, there has been a significant gap between the official and parallel-market rates, leading to issues of liquidity and the attractiveness of the parallel market’s premium.

Oyedele said the divergence between the official and parallel-market rates “means you are sucking liquidity and supply from the official market to the parallel market, because everyone wants the premium.”

The government has undertaken efforts to reverse this flow of dollars from the official FX window to the parallel market, with measures such as executive orders for dollar-denominated instruments and bonds. In addition, the central bank aims to bring more clarity to how the forex market operates.

The government has also made efforts to boost FX liquidity in the official market, aiming to force prices down in the parallel market. Part of the efforts was disclosed by finance minister, Wale Edun, at a summit in Abuja last week, that Nigeria expects to receive $10 billion of inflows in the coming weeks that will help ease liquidity and clear the backlog of overdue forward contracts weighing on the naira.

Also, President Bola Tinubu has signed two executive orders intending to stabilize Nigeria’s currency and attract investments. One order enables the issuance of dollar-denominated instruments for Nigerians holding dollars locally, while the second facilitates the issuance of dollar-denominated bonds for Nigerians abroad and foreign investors.

These measures are intended to reverse the flow of dollars from the official FX window to the parallel market, providing alternative channels for currency usage and investment. The executive orders are in the process of being officially announced.

However, these efforts have been juxtaposed by prevaricating management decisions of the central bank in striking a balance between a more flexible exchange rate system and maintaining stability in the currency. For instance, while the central bank initially indicated in June that the naira’s exchange rate would be determined by supply and demand, it later appeared to reintroduce controls to stabilize the currency following a 40% devaluation.

Naira Performance

However, the naira has appreciated in the market in recent days, a performance attributed to news that the government is working to secure a $10 billion loan to boost dollar liquidity.

But despite recent appreciation on the parallel market, the naira still faces a significant gap between the official and parallel rates. On the parallel market, the naira closed at N110/$ on Monday, compared to N1230/$ the previous Friday. In contrast, the official Investor & Exporter (I&E) window (newly renamed Nigerian automated foreign exchange market, NAFEM) closed at N993.82/$, weaker than the N789.94/$ the previous Friday.

Tekedia Investment and Portfolio Management program Begins on Nov 6; Register Now

By

Ndubuisi Ekekwe

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October 31, 2023

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The next edition of Tekedia Investment and Portfolio Management program will begin on Nov 6. This program is designed to provide learners with hands-on experience in performing investment research, investing capital, and managing a portfolio. The program runs for 8 weeks and it is completely virtual. Besides some pre-recorded courseware developed by eminent capital market experts, the program includes live Zoom sessions (the first 4 weeks).

In the academic component, the program prepares learners to master the institutional structure, and fundamental concepts of asset valuation, in financial markets, using analytical tools to study the valuation of different types of securities. Fundamentally, learners are equipped to understand investment theory, portfolio development and management.

It is divided into 3 core components – Investment Fundamental and Tools; Laboratories, Research & Investment Capture; and Lessons Learned. The next edition begins Nov 6, 2023.

Cost: $400 or N180,000 naira per participant. Register here

Understanding Forex Market Analysis: Technical vs Fundamental

By

TI Partners

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October 31, 2023

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The foreign exchange (forex) market is the largest and most liquid market in the world, with over $5 trillion traded daily. Successfully trading currencies requires a solid understanding of forex market analysis. There are two main approaches to analysing the forex market – technical analysis and fundamental analysis. Knowing the key differences between these two methods is crucial for new forex traders. In this article, we will explore both approaches and how they can be used together to make informed trading decisions.

An Introduction to Forex Trading

The forex market consists of trading pairs of currencies, like EUR/USD or GBP/JPY. The first currency listed is called the base currency, and the second is called the quote or counter currency. When you buy or sell a currency pair, you are speculating on whether the base currency will rise or fall against the quote currency.

Forex trading is conducted on margin, meaning you only have to put down a small percentage of the total trade value. Trading on margin allows for greater potential profits but also greater potential losses. Leverage should be used judiciously by beginning traders.

Technical Analysis – Reading the Charts

Technical analysis involves analysing charts and market data to identify trading opportunities. Some of the key tools used in technical analysis include:

Price action – Analysing historical price movements on a chart to find patterns. Common patterns include trends, breakouts, and reversals.

Indicators – Mathematical formulas that use price and volume data to calculate metrics like moving averages, relative strength, and volatility. These indicate overbought/oversold levels, momentum shifts, and trend strength.

Support and resistance levels – Price levels where buying or selling pressure prevents further price movement in one direction. These act as floor and ceiling levels where trends often reverse.

Technical analysts rely on the premise that current price movements can help predict future moves. Charts and indicators make it easier to identify trading opportunities and determine entry/exit points.

Fundamental Analysis – Understanding the Factors

Fundamental analysis involves evaluating the underlying factors that affect currency values. This includes:

Economic data – Key reports like GDP, employment, manufacturing, interest rates, and inflation that indicate the health of a nation’s economy. Strong economic data tends to boost a currency.

News and events – Major news stories, political events, and international relations that impact currency valuations.

Relative economic strengths – Comparing the relative strength of countries’ economic and financial data to predict currency movements. A weaker economy typically means a weaker currency.

Interest rate differentials – The difference between interest rates in two countries affects their currency valuation and traders’ carry trade strategies.

Fundamental analysts study these factors to gauge current sentiment and predict future valuation trends. For example, if the US Federal Reserve raises interest rates, the US Dollar would theoretically strengthen against other currencies.

Combining Technical and Fundamental Analysis

Many forex traders use a combination of both technical and fundamental analysis. This gives a more holistic view of the market. The two approaches complement each other well.

Technical analysis helps traders identify opportune entry and exit levels for trades, while fundamental analysis provides the logic for why a currency movement is occurring. For example, a price chart may reveal a head and shoulders pattern signalling a potential reversal. Fundamental analysis can then be used to confirm if economic events support a reversal.

Executing Forex Trades

There are two main ways to trade forex:

Spot trading – Trading currency pairs directly at the current market price. Settlement of spot trades happens on a T+2 basis.
CFD trading – Trading a contract for difference (CFD) derivative that mirrors the value of the underlying currency pair. CFDs allow you to trade CFD on margin and take short as well as long positions.

Once you have identified a potential trading opportunity via analysis, you can execute a trade accordingly. With CFDs, you can trade with leverage to maximise your exposure with a small initial deposit. However, leverage also amplifies potential losses, so risk management is key.

Developing an Analytical Trading Plan

An effective trading plan requires incorporating both technical and fundamental analysis into your decision-making process. Here are some tips for developing a robust trading plan:

Identify key technical levels and indicators to watch
Keep up with fundamental drivers like economic data and news
Find trading opportunities where technicals and fundamentals align
Use technical entry and exit points along with fundamental logic
Employ proper risk management strategies
Maintain trading discipline according to your plan and rules

Continuously hone your analysis skills through practice, reviews and market observation. Stay adaptable in applying analysis to fit evolving market conditions.

The Benefits of Market Analysis in Forex

Implementing a structured approach to market analysis offers several benefits for forex traders:

Finds higher probability trading opportunities
Provides objective entry and exit points
Gives a logical basis for trades
Helps manage trading risks
Significantly improves trading success and profits

Combining technical and fundamental analysis provides a potent one-two punch for trading success. Learn to expertly apply both, and you will boost your trading potential in the exciting foreign exchange market. With proper analysis and risk management, you can successfully trade CFDs and potentially profit from the forex opportunities.

UK to regulate crypto in 2024, Fitzgerald sees spot bitcoin ETF as Catalyst

By

Paul Ugbede Godwin

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October 31, 2023

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The United Kingdom’s government has announced its plans to regulate the cryptocurrency market by 2024, in a bid to foster innovation and protect consumers from potential risks. The move comes as the crypto industry is experiencing rapid growth and increasing adoption, both in the UK and globally.

According to a policy paper published by the Treasury, the government intends to introduce a comprehensive regulatory framework for cryptoassets and stablecoins, which are digital tokens pegged to fiat currencies or other assets. The paper outlines the government’s vision for a “safe, open and greener” crypto market that supports financial inclusion, competition and resilience.

The paper also states that the government will consult on the regulation of decentralized finance (DeFi), which is a term for various applications and platforms that use blockchain technology to offer financial services without intermediaries. DeFi has been hailed as a game-changer for the financial sector, but also poses significant challenges in terms of consumer protection, market integrity and financial stability.

One of the main risks of crypto is its high volatility, which means that the prices of cryptoassets can fluctuate dramatically in a short period of time. This can expose investors to substantial losses, especially if they are not well-informed or experienced. Another risk is the lack of consumer protection, as most cryptoassets are not covered by any compensation scheme or dispute resolution mechanism.

This means that if a crypto platform or service provider fails or is hacked, consumers may not be able to recover their funds or seek redress. A third risk is the environmental impact of crypto mining, which is the process of creating new cryptoassets by solving complex mathematical problems. Crypto mining consumes a large amount of electricity, which can contribute to greenhouse gas emissions and climate change.

The government’s plans are aligned with the recommendations of the Financial Conduct Authority (FCA), which is the UK’s financial watchdog and the main regulator of cryptoassets. The FCA has been warning consumers about the high risks and volatility of investing in cryptoassets, and has banned the sale of certain types of crypto derivatives to retail investors.

The FCA has also been working with international partners to develop global standards and best practices for crypto regulation, as part of the Financial Stability Board (FSB) and the G20. The UK aims to play a leading role in shaping the global regulatory landscape for crypto, and to ensure that its domestic rules are consistent and compatible with those of other jurisdictions.

The government expects to introduce legislation on crypto regulation in 2023, and to implement it by 2024. The timeline is subject to parliamentary approval and consultation with stakeholders, including industry representatives, consumer groups, academics and regulators.

The government hopes that by providing clarity and certainty on the legal status and treatment of cryptoassets, it will encourage innovation and investment in the sector, while also safeguarding the interests of consumers and the wider economy. The government believes that crypto has the potential to transform the way people access and use financial services, and to support the UK’s ambitions as a global leader in fintech and green finance.

Fitzgerald sees spot bitcoin ETF as most-important short-term catalyst, Circle partners with BitoGroup and FamilyMart

The investment bank Cantor Fitzgerald has recently published a report on the prospects of a spot bitcoin exchange-traded fund (ETF) in the US market. The report argues that a spot bitcoin ETF would be the “most-important short-term catalyst” for the cryptocurrency industry, as it would provide a more efficient and transparent way for investors to access the digital asset.

According to the report, a spot bitcoin ETF would have several advantages over the existing bitcoin futures ETFs, such as lower fees, lower tracking error, and higher liquidity. The report also claims that a spot bitcoin ETF would attract more institutional and retail investors, as well as more regulatory clarity and legitimacy for the crypto space.

But what is a spot bitcoin ETF and how does it differ from the existing bitcoin futures ETFs? A spot bitcoin ETF is a type of fund that tracks the price of bitcoin directly, by holding the actual bitcoins in custody. A bitcoin futures ETF, on the other hand, tracks the price of bitcoin indirectly, by holding contracts that bet on the future price of bitcoin.

According to the report, a spot bitcoin ETF would have several advantages over the existing bitcoin futures ETFs, such as lower fees, lower tracking error, and higher liquidity. The report also claims that a spot bitcoin ETF would attract more institutional and retail investors, as well as more regulatory clarity and legitimacy for the crypto space.

The report estimates that a spot bitcoin ETF could generate up to $50 billion in assets under management (AUM) in its first year, based on the historical performance of the gold ETFs and the current market size of bitcoin. The report also expects that a spot bitcoin ETF would boost the price of bitcoin by 10% to 20% in the short term, and by 50% to 100% in the long term.

The report acknowledges that there are still some challenges and uncertainties for a spot bitcoin ETF to be approved by the US Securities and Exchange Commission (SEC), such as the lack of a clear regulatory framework, the volatility and security risks of bitcoin, and the potential market manipulation and fraud. However, the report expresses optimism that these issues can be resolved or mitigated over time, and that a spot bitcoin ETF is “inevitable” in the near future.

The report concludes that a spot bitcoin ETF would be a “game-changer” for the crypto industry, and that Cantor Fitzgerald is “ready to participate” in this opportunity. The report also urges investors to “position themselves accordingly” for this potential scenario.

Circle partners with Taiwan’s BitoGroup and FamilyMart to expand presence

Circle, a leading global financial technology firm, has announced a strategic partnership with Taiwan’s BitoGroup and FamilyMart, one of the largest convenience store chains in the country. The partnership aims to expand Circle’s presence and adoption in the Taiwanese market, where it sees a growing demand for digital currency solutions.

According to a press release, Circle will leverage BitoGroup’s expertise and network in the local crypto industry, as well as FamilyMart’s extensive retail presence, to offer its products and services to Taiwanese consumers and businesses. Circle’s flagship product, the USDC stablecoin, will be integrated with BitoGroup’s BitoEX platform, allowing users to easily buy, sell, and store USDC using local currency. Additionally, Circle will work with FamilyMart to enable customers to purchase USDC at over 3,000 convenience stores across Taiwan, using cash or credit cards.

Jeremy Allaire, co-founder and CEO of Circle said: “We are thrilled to partner with BitoGroup and FamilyMart to bring the benefits of digital currency to millions of people in Taiwan. This is a significant milestone for Circle, as we continue to expand our global footprint and reach new markets. Taiwan is a vibrant and innovative economy, with a strong interest in crypto and blockchain. We believe that USDC can play a key role in enabling more financial inclusion, efficiency, and innovation in this market.”

Titan Cheng, co-founder and CEO of BitoGroup, said: “We are honored to partner with Circle, a pioneer and leader in the global fintech space. We share a common vision of empowering people with digital currency solutions that are fast, secure, and transparent. By integrating USDC with our BitoEX platform, we can offer our users a seamless and convenient way to access the world’s leading stablecoin. We look forward to working with Circle to grow the adoption of USDC in Taiwan and beyond.”

FamilyMart, which operates over 24,000 stores in Asia, said: “We are excited to collaborate with Circle and BitoGroup to bring USDC to our customers. As a leading convenience store chain, we are always looking for ways to enhance our customer experience and offer more value-added services. By enabling our customers to purchase USDC at our stores, we can provide them with a new and convenient option to access the digital economy.”

The New Naira FX Rules Must Consider Variables Like Ports Because They Matter

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