13 important facts from CBN’s guideline on new forex policy

– The CBN announced a new guideline on foreign policy and abolished the dual foreign exchange

– The CBN governor said Nigeria had been affected by global economic issues and drop in price of oil

– It promises to make the market transparent and efficient

The Central Bank of Nigeria announced a new foreign exchange policy with the most significant being that there will be only a single market for acquisition of the foreign currency.

This announcement was made by Godwin Emefiele who is the governor of CBN on Wednesday, June 15.

The flexible policy will see the naira devalue against the dollar while the dual exchange rate policy has been abolished.

Here are important takeaways from the CBN governor’s guideline:

The market shall operate as a single market structure through the inter-bank/autonomous window;

READ ALSO: CBN plans new policy to weaken Naira

The Exchange Rate would be purely market-driven using the Thomson-Reuters Order Matching System as well as the Conversational Dealing Book;

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, which would also be released immediately after this Press Briefing;

There shall be no predetermined spread on FX spot transactions executed through the CBN intervention with Primary Dealers, while all FX Spot purchased by Authorized Dealers are transferable in the inter-bank FX Market;

The Forty-One (41) items classified as “Not Valid for Foreign Exchange” as detailed in a previous CBN Circular shall remain inadmissible in the Nigerian FX market;

To enhance liquidity in the market, the CBN may also offer long-tenored FX Forwards of 6 to 12 months or any tenor to Authorized Dealers;

READ ALSO: Naira crashes to N365/$1 on parallel market

Sale of FX Forwards by Authorized Dealers to end-users must be trade-backed, with no predetermined spreads;

The CBN shall introduce non-deliverable over-the-counter (OTC) Naira-settled Futures, with daily rates on the CBN-approved FMDQ Trading and Reporting System. This is an entirely new product in the Nigerian Foreign Exchange Market, which would help moderate volatility in the exchange rate by moving non-urgent FX demand from the Spot to the Futures market;

The OTC FX Futures shall be in non-standardized amounts and different fixed tenors, which may be sold on any dates thereby ensuring bespoke maturity dates;

Proceeds of Foreign Investment Inflows and International Money Transfers shall be purchased by Authorized Dealers at the Daily Inter-Bank Rate; and

Non-oil exporters are now allowed unfettered access to their FX proceeds, which shall be sold in the Inter-bank market.

READ ALSO: Nigerians react to CBN’s new forex policy

Emefele also explained that primary dealers will be notified by Friday June 17 while other non-primary Dealers would remain valid and eligible to participate in the market

Inter-bank trading under the new guidelines will begin on Monday June 20 the tenors and rates for the OTC Naira-settled FX Futures will be announced on Monday June 27.

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