Monday, July 25, 2011

How can I get my dollars direct?

I noticed that there is a gap of over 10% between the official exchange rate and current black-market rate. While the official rate crashed around July 1st to 150naira per US Dollar, your mallam will sell to you not at 153 (for a typical 2% spread) but around 166 (a very atypical 11% difference).
It makes sense that the official rate is low; the dollar is so poorly that no currency has a right to do worse, but how do you explain the high dollar price on the streets? The newspaper (ThisDay) is reporting that this is due to a shortage of dollars created by a Central Bank policy pegging dollar supply to Bureaus Des Change.

If only we could automatically change currency at the points of use, like I used to do with my U.S. Visa debit card. It basically got you any currency - even Naira, at local ATMs - at the best possible exchange rate. But now I have a Nigerian visa card that accomplishes much less. The bank offers a "dual-currency" debit card as well, but the processing time for that application is about four months. They assured me they were not kidding about the length of time, no, it's not a joke. Four month wait for two currencies. Four week wait for 100 currencies --> Let's just say America has a more developed financial services sector than Nigeria.
Meanwhile, with the same currency selling for 150 one way and 166 another way, there is arbitrage, or what my brotha Mr. Bismarck-Rewane termed "a round-tripping paradise."


t said...

Blogging via mobile sucks. Trying to insert a link to a chart. The chart is here, I'll insert later: Nigerian Naira - US Dollar exchange rate
Also, I just saw an ad from another bank claiming that with their special debit card, you can spend anywhere in the world directly from your naira account (God bless you, welcome to the party, 10 years late but better than never.) Still they're a better buy than another bank advertising in the same paper their domiciliary account funds transfer service. Straight out of the telex age, I tell you.

t said...

Although the bank had assured me that it would take four months, it actually took half the time (or less) for them to do my special debit card. This is progress.

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