UPDATED: CBN announces the elimination of the Naira 4 Dollar structure and the unification of FX windows.

The Central Bank of Nigeria (CBN) has announced the unification of all segments of the Nigerian forex market.

The apex bank, in a statement Wednesday, announced the collapse of all windows into the Investors & Exporters (I&E) window.

This move is part of the Nigerian government’s efforts to improve liquidity and stability in the market and attract foreign investors into the Nigerian economy.

The apex bank also stopped the RT200 programme and the naira4dollar remittance scheme from 30 June, 2023.

These schemes, which incentivised remittances and encouraged the inflow of foreign currency, will no longer be in operation, it said.

According to the press statement signed by the Director of Financial Markets, Angela Sere-Ejembi, the bank abolished the segmentation of the FX market into different windows.

“All transactions will now be done through the Investors and Exporters (I&E) window, where the exchange rate will be determined by market forces. Applications for medicals, school fees, BTA/PTA, and SMEs would continue to be processed through deposit money banks,” it said.

PREMIUM TIMES reported earlier on Wednesday that Naira weakened significantly against the United States dollar at the Investors and Exporters window as CBN allowed the local fiat to trade ‘freely’ in an effort to reset the nation’s monetary policy.

Reports claimed that the CBN directed banks to remove the cap on the investors’ and exporters’ (I & E) window of the forex market to allow for the free float of the naira exchange rate.

New Model

The CBN also announced reintroducing the “Willing Buyer, Willing Seller” model at the I&E window. This model allows eligible transactions to access foreign exchange based on the guidelines outlined in the circular dated 21 April 2017.

Allowing market forces to determine exchange rates under this model is expected to enhance transparency and promote fair pricing in the forex market.

Under the new framework, the bank said the operational rate for all government-related transactions would be determined by the weighted average rate of the preceding day’s executed transactions at the I&E window, calculated to two decimal places.

The CBN also significantly changed trading limits on oversold and overbought foreign exchange positions.

The proscription of trading limits on oversold positions provides more flexibility, allowing market participants to hedge short positions with over-the-counter (OTC) futures.

On the other hand, limits on overbought positions have been set to zero, preventing excessive accumulation of foreign exchange.

To ensure transparency and seamless execution of trades, the CBN also reintroduced order-based two-way quotes, with a bid-ask spread of N1.

Additionally, all transactions in the forex market will be cleared by a Central Counter Party (CCP), adding an extra layer of security and standardisation to the trading process.

The bank said the operational hours for forex trades would be from 9 am to 4 pm Nigeria time, providing a defined timeframe for market participants to engage in foreign exchange transactions.

The CBN further assured market participants and the general public that further guidance would be communicated promptly.

Policy Reset

The decision of the CBN aligns with the commitment made by Mr Tinubu to unify the various exchange rates prevalent in the Nigerian market.

For years, experts and global financial institutions have raised concerns about the nation’s opaque exchange rate regime.

President Tinubu had, during his inauguration speech, unveiled a plan to harmonise the nation’s multiple exchange rates as part of the broad plan to transform Africa’s largest economy.

He also said his administration aims to expand the country’s gross domestic product (GDP) by “not less than 6 per cent”.

 

ByAyodeji Adegboyega

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