After the decision to float the naira on Wednesday, the Central Bank of Nigeria (CBN) has released its operational guidelines for transactions in the FX market.
The guidelines, which are directed towards authorized dealers and the general public, have officially abolished the contentious multiple exchange rate windows.
Earlier on Wednesday, the CBN announced the floatation of the naira, dismantling the controlling grip it had on Nigeria’s foreign exchange market.
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The move has collapsed different exchange market rates into the Investor and Exporter window, which now is reportedly trading at N664.04 per dollar. The official CBN rate stood around N461 per dollar before the floatation.
Experts have applauded the move, noting that among many other benefits, it will boost Foreign Direct Investment. However, some concerns have been raised.
“The CBN decision is a good development, hoping that unnecessary arbitrage (round tripping) would be eliminated from the market,” Prof. Ndubisi Nwokoma, Director, Centre for Economic Policy Analysis and Research, University of Lagos, said.
“We expect that the foreign exchange rate will trend downwards when foreign capital inflow increases, following from these.
“The negative side is that many assets or foreign sector related to Naira prices, like external debt, among others, will be adjusted upwards with some minimal effects on inflation.
“Inflationary effects may not be much, given that many economic agents had been sourcing for their foreign exchange at the parallel market before now.”
However, the CBN has outlined the following changes to the operations of the FX Market:
- Abolishment of segmentation. All segments are now collapsed into the investors and Exporters (I&E) window. Applications for medicals, school fees, BTA/PTA, and SMEs would continue to be processed through deposit money banks.
- Re-introduction of the “Willing Buyer, Willing Seller” model at the I&E Window. Operations in this window shall be guided by the extant circular on the establishment of the window, dated 21 April 2017 and referenced FMD/DIR/CIR/GEN/08/007.
- All eligible transactions are permitted to access foreign exchange at this window.
- The operational rate for all government-related transactions shall be the weighted average rate of the preceding day’s executed transactions at the I&E window, calculated to two (2) decimal places.
- Proscription of trading limits on oversold FX positions with permission to hedge short positions with OTC futures. Limits on overbought positions shall be zero.
- Re-introduction of order-based two-way quotes, with bid-ask spread of A1. Al transactions shall be cleared by a Central Counter Party (CCP).
- Reintroduction of Order Book to ensure transparency of orders and seamless execution of trades.
- The operational hours of trades shall be from 9am to 4pm, Nigeria time.
- Cessation of RT200 Rebate Scheme and the Naira4Dollar Remittance Scheme, with effect from 30 June 2023.
The CBN said further guidance on these matters shall be communicated in due course.