CBN Releases New Forex Market Guidelines, Floats The Naira

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The Central Bank of Nigeria, CBN, on Wednesday announced a full float of the Naira, which will make the foreign exchange, forex, rate to be now determined by market forces, although the apex bank said it will intervene “as the need arises”.

Disclosing this in Abuja at a press conference on the Flexible Exchange Rate Policy, the CBN Governor, Mr. Godwin Emefiele averred that the 41 items banned last year from access to forex remained banned.

According to him, “We’re talking about an open, transparent two-way system… It’s intended we don’t have speculators and rent-seekers. I don’t expect that any other exchange rate will be recognized.”

For the first time however, the CBN appointed primary dealers who are expected to help boost foreign exchange, FX, liquidity in the market and introduced a two way quote which basically means that the market will act like the stock market where buyers and sellers will state price and quantity they are willing to sell.

The CBN Governor also revealed that Nigeria will now be operating a single market, adding that the new price for the Naira will be known when the market opens officially on Monday.

Below is a summary of the press conference on Wednesday…

1. The Market will operate as single market through the interbank

2. The FX Rate will be purely market-driven

3. CBN will participate through periodic interventions

4. FX primary dealers will be registered to deal directly with the CBN for large deal sizes.

5. FX primary dealers will deal with other authorised dealers

6. There will be no more spread restrictions

7. The 41 items classified for not valid for FX are still not admissible in FX interbank market

8. CBN may offer long-tenored FX forwards

9. Selling of FX forwards must be trade backed with no pre-determined spreads

10. Over the Counter FX futures will be introduced. The OTC FX futures are bespoke and volumes could be non-standard

11. Non-oil exporters are now allowed unfettered access to export proceeds via the interbank market

Timelines

12. Guidelines of the general FX market will be released immediately

13. Guidelines for FX primary dealers will be released immediately

14. FX primary dealers will be appointed and notified by June 17, 2016

15. Interbank FX trading under the new guidelines will begin on June 20, 2016

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