CBN Announces Unification of FX Windows, Stops Naira4Dollar Scheme

MaTaZ ArIsInG

…Issues 8 new guidelines to banks, forex dealers

Nigeria’s apex bank, 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 stopped the RT200 programme and the naira4dollar remittance scheme effective 30 June.

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.

The Naira had earlier 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.

Meanwhile, the Director, Financial Markets Department of the Central Bank of Nigeria (CBN), Alvan Ikoku, had issued a circular to banks and other foreign exchange (Forex or FX) authorised dealers informing them of changes in the FX market.

In the circular titled; “FURTHER LIBERALIZATION OF THE INTER-BANK FOREIGN EXCHANGE (FX) MARKET,” and dated June 5, 2023, but seen on Wednesday, the CBN stated that authorised dealers should ensure they sell all forex purchased before the end of the day.

Authorised dealers, which includes financial institutions, are prohibited from being in possession of foreign banknotes overnight.

They are also restricted from selling to another authorised dealer after buying the foreign exchange from an authorised dealer in the interbank market.

Also, the authorised dealers were informed to sell off the excess forex currently in their keep without obtaining the approval of the CBN.

The circular reads: “The Central Bank of Nigeria (CBN), in its efforts to further develop the Nigerian FX market, continues to embark on initiatives that serve to improve the FX market structure. Consequently, further to the CBN Circular FMD/DlR/ClR/GEN/08/007 dated April 21, 2017, on the Establishment of the Investors’ & Exporters’ (I&E) FX Window, the CBN hereby issues the following directives:

• 1. Authorised Dealers mafease their excess foreign currency trading positions to other Authorised Dealers without seeking prior approval from the CBN.
• 2. All inter-bank transactions shall be subject to a maximum spread of NI.00.
• 3. Funds purchased by an Authorised Dealer from another Authorised Dealer, in the inter-bank market, shall not be held in position overnight by the buying Authorised Dealer or sold to another Authorised Dealer.
• 4. Such Inter-bank purchases shall only be sold by the buying Authorised Dealer to its customers for Permitted/Eligible Transactions as outlined in the above-referenced Circular. All documentation requirements for Permitted Transactions shall apply.
• 5. Authorised Dealers shall not exceed their respective Foreign Currency Trading Position Limit (FCTPL) without the approval of the CBN. Compliance with the FCTPL shall be strictly monitored by the CBN.
• 6. All inter-bank trades – spot, forwards, futures, options and swaps – that have an impact on an Authorised Dealer’s FCTPL are expected to comply with rate reasonability standards.
• 7. The CBN reserves the right to intervene, as a buyer or seller, as it deems fit in the inter-bank market.
• 8. Authorised Dealers must report to the CBN, details (source and applications indicating the amount, counterparty, deal rate, etc.) of all inter-bank purchases/sales by 4 p.m. daily through the portal provided (fxreturns@cbn.gov.ng). Compliance is mandatory.

Meanwhile, the apex bank advised authorised dealers to counsel their corporate clients on the need 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 System and, in turn, ensure that the objective of deepening the market is achieved,” the CBN wrote in the circular.

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