. CPPE says move to unlock investments, capital, others
The Central Bank of Nigeria (CBN), yesterday announced the immediate unification of all segments of the foreign exchange (FX) market.
For many years, the Bretton Woods institutions, notably the International Monetary Fund (IMF), and the World Bank, have constantly called for free float (demand and supply matrix) and disbandment of multiple exchange rates to allow the Naira find its true value at the currency market, which had been strongly resisted by the CBN.
But in a circular signed by the Director, Financial Markets, Angela Sere-Ejembi, the apex bank listed a series of changes in FX operations in a move that has received wide commendation by stakeholders.
The changes include:
- 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 FM/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 N1. All 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 RT2200 Rebate and the Naira4Dollar Remittance Scheme, with effect from 30 June, 2023.
The CBN said further guidance on the operational changes would be communicated to authorised dealers and the general public in due course.
It would facilitate the mopping up of naira liquidity in the economy in the short to medium term. This would impact positively the inflation outlook.
Unlocking investment potential
Reacting to the rates unification, the Director, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said this would unlock the huge potential for investment, jobs, and capital flows in Nigeria.
Yusuf in a statement argued that the new system will allow for flexible rate adjustments making the market predictable, equitable, transparent, and sustainable.
The statement reads in part: “A unified exchange rate regime enhances liquidity and reduces uncertainty in the foreign exchange market. It would boost government revenue by a minimum of N4 trillion through additional remittance of exchange rate surplus to the federation account by the CBN and allow the use of naira cards for limited international transactions.
“It would facilitate the mopping up of naira liquidity in the economy in the short to medium term. This would impact positively the inflation outlook.
“The CPPE also expects the new policy to deepen the autonomous foreign exchange market through the liberalisation of inflows from Export Proceeds, Diaspora Remittances, Multinational oil companies, diplomatic missions, etc.”
