Central Bank of Nigeria floats the Naira in a flexible foreign exchange framework

The Central Bank of Nigeria
The Central Bank of Nigeria (CBN) has finally released the guidelines of the new foreign exchange policy. The release came after weeks of consultations with stakeholders including the banks, on the need for a more flexible forex market to, among other things, reduce pressure on the local currency and incentivize foreign investors.

Godwin Emefiele, the CBN governor, announced the new policy on Wednesday, releasing the naira to float according to the push and pull of the market forces.

“The market shall operate as a single market structure through the inter-bank/autonomous window; the Exchange Rate would be purely market driven using the Thomson-Reuters Order Matching System as well as the Conversational Dealing Book,” the CBN governor had said.

“The CBN would participate in the Market through periodic interventions to either buy or sell FX as the need arises; to improve the dynamics of the market, we will introduce FX Primary Dealers (FXPD) who would be registered by the CBN to deal directly with the Bank for large trade sizes on a two-way quotes basis.

“These Primary Dealers shall operate with other dealers in the Inter-bank market, amongst other obligations that will be stipulated in the Foreign Exchange Primary Dealers (FXPD) Guidelines.”

The document, titled ‘Guidelines for primary dealership in foreign exchange products’, explains all that analysts, dealers, players in the industry and other concerned parties need to know.

The CBN says it reserves the rights to change the operational guidelines stated in the document below “from time to time”.

The Naira has been under tremendous pressure of late with the fall in oil prices significantly affecting the foreign exchange earnings of the Nigerian government. President Muhammadu Buhari had earlier resisted suggestions on the devaluation of the Naira.


13 Key Points of the Guidelines

  1. The forex market is to operate as a single market structure through the inter-bank/autonomous window.
  2. Exchange rate will be purely market-driven.
  3. CBN will participate in the market through periodic interventions to either buy or sell forex.
  4. CBN will introduce forex Primary Dealers to deal on large trade sizes on a two-way quotes.
  5. Forex primary dealer have to meet the following criteria: Minimum Shareholders Fund unimpaired by losses of at least ₦200bn; minimum of N400bn in Total Foreign Currency and minimum Liquidity Ratio of 40 per cent.
  6. Primary dealers to operate with other dealers in the interbank market.
  7. No predetermined spread on forex spot transactions executed through the CBN intervention with Primary Dealers.
  8. Forty-one items classified as ‘Not valid for Foreign Exchange’ shall remain inadmissible in the Nigeria forex market.
  9. CBN may offer long-tenored forex Forwards of six to 12 months or any tenor to Authorised Dealers.
  10. Sale of forex forwards by Authorised Dealers to end-users must be trade-backed, with no predetermined spreads.
  11. CBN to introduce non-deliverable over-the-counter naira-settled futures.
  12. Proceeds of foreign investment inflows and International money transfers to purchased by Authorised Dealers.
  13. Non-oil exporters now allowed unfettered access to their FX proceeds.

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