CBN further liberalizes the FX market, injects $190m

The Central Bank of Nigeria (CBN) has announced further Liberalisation of the interbank foreign exchange market inorder to further develop and improve its structure.

In a new circular, the CBN stated that all authorized dealers could defease their foreign currency trading positions to other authorized dealers without seeking prior approval from the regulator.

All interbank transactions would now be subject to a maximum spread of one naira.

The CBN also directed that funds purchased by an authorized dealer from another authorized dealer, in the interbank market, should not be held in position overnight by the buying authorized dealer or sold to another authorized dealer.

The circular is sequel to an earlier one which established an Investors’ and Exporters’ (I&E) FX window.

Such interbank purchases can only be sold by the buying authorized dealer to its customers for permitted/eligible transactions as outlined in the I&E circular. “All documentation requirements for permitted transactions shall apply,” the CBN stated.

Authorized dealers are not meant to exceed their respective foreign currency trading position limit (FCTPL) without the approval of the CBN. “Compliance with the FCTL shall be strictly monitored by the CBN.”

The CBN also directed in the circular that all interbank trades- spot, forwards, futures, options and swaps- that have an impact on an authorized dealer’s FCTP, are expected to comply with rate reasonability standards.

The CBN said it reserved the right to intervene, either as a buyer, or seller, as it deems fit in the interbank market.

Meanwhile, authorized dealers must report to the CBN, details, including source and applications indicating the amount, counterparty, deal rate etc, of all interbank purchases/sales by 4pm daily through the portal it provided. “Compliance is mandatory,” it also stated.

On the on-boarding of FMDQ trading system, the CBN advised all authorized dealers to encourage their corporate clients to onboard the FMDQ- advised FX trading system immediately, to avoid sanctions, foster the speedy migration of the activities of the I&E FX window unto the FX trading systems and , in turn ensure that the objective of deepening the market is achieved.

“What this directive means among other provisions, is that it allows authorized dealers to sell their excess foreign currency trading positions to other authorized dealers without seeking prior approval from the CBN,” the Acting Director, Corporate Communications at the CBN, Isaac Okorafor.

This comes as the CBN injected $190m into Forex market on Monday, relentless in its push to achieve convergence of rates in the interbank and Bureau de Change segments of the foreign exchange market.

At Monday’s trading, the Bank offered the sum of $100,000,000 as wholesale interventions and allocated the sum of $50,000,000 to the Small and Medium Enterprises (SMEs) forex window. Customers requiring forex for Business/Personal Travel Allowances, tuition and medical fees, among others, got $40 million.

Confirming the figures yesterday, Okorafor, said the Bank was pleased at the performance of the naira, which had made tremendous gain against the dollar in recent times.

According to him, the forex rates at both the inter-bank and BDC segments, had almost converged, prompting even greater optimism that the value of the naira will continue to spike.

Okorafor observed that by ensuring transparency in the market as well as fairness to end-users, the CBN had further exposed speculators and checkmated them. He therefore urged all dealers, particularly licensed BDCs, to continue to play by the rule, adding that the CBN would not hesitate to wield the big stick against any erring bank or dealer.

The naira continued to maintain its strong stand against major currencies around the globe, exchanging for $364/$1 in the BDC segment of the market on Monday, June 5, 2017.

Onyinye Nwachukwu, Abuja