The Central Bank of Nigeria (CBN) has directed Deposit Money Banks to remove the rate cap on the naira at the official Investors and Exporters’ Window of the foreign exchange market, to allow for a free float of the national currency against the dollar and other global currencies.
This came barely two weeks after President Bola Tinubu promised to unify the nation’s multiple exchange rates, and less than a week before the suspension and detention of CBN Governor Godwin Emefiele whose unorthodox monetary policies had become a stumbling block to investors and the economy.
The CBN’s decision to float the currency was hailed by the organised private sector and economists who said the move would unify the country’s multiple exchange rate and bring sanitise the FX market
The development means buyers and sellers of foreign currency in the official FX markets are now allowed to quote rates they find comfortable in the FX market, as against the previous practice where rates were dictated by the Central Bank of Nigeria.
Following the development, the naira depreciated to N664.04/dollar at the close of trading at the I&E Window on Wednesday, according to data from the FMDQ Securities Exchange.
That implies a 40.97 percent decline in the naira value compared to the 471/dollar rate which the national currency closed at the I&E Window on Tuesday. Data from the FMDQ Exchange showed that trading at the I&E forex window opened at 473.83/$ before closing at 664.04/$. A total turnover of $193.33m was recorded.
The naira had always closed below N480/dollar at the I&E Window over the years.
However, the CBN had yet to update the I&E Window rate on its website as of 9pm on Wednesday.
The central bank quoted N463.38/$ as the I&E rate for June 9, 2023.
According to the chief executive officer of a commercial bank, who confirmed the development, banks are now allowed to trade forex on the I & E window at any rate, subject to N1 spread.
“The CBN has called banks that the rate cap has been removed at I&E Window. Hence, banks and customers are allowed to trade freely at any rate subject to N1 spread between buy and sell rate”, the bank chief said.
In a statement on Wednesday signed by the CBN’s Director of Financial Markets, Dr Angela Sere-Ejembi, the apex bank confirmed that major changes had been made to the operations of the foreign exchange market.
According to the statement, the CBN has collapsed all foreign exchange segments into the I&E window.
It read, “The Central Bank of Nigeria wishes to inform all authorised dealers and the general public of the following immediate changes to operations in the Nigerian Foreign Exchange Market:
Abolishment of segmentation. All segments are now collapsed into the Investors and Exporters 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 FMD/DlR/ClR/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 decimal places.”
Other changes include, “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.
“Reintroduction of Order Book to ensure transparency of orders and seamless execution of trades.”
The CBN also ended the RT200 rebate scheme and the Naira4Dolar remittance scheme.
“Cessation of RT200 Rebate Scheme and the Naira4Dollar Remittance Scheme, with effect from 30 June 2023.
“Further guidance on these matters shall be communicated in due course. All market participants and the general public are kindly enjoined to abide by these rules,” the statement added.
The CBN added that operational hours of trades shall be from 9am to 4pm, Nigeria time.
Meanwhile, at the parallel market on Wednesday, the naira closed at 757/dollar.
Currency dealers in Lagos, Abuja and Lagos airport said the naira was sold and bought at 757 and 750, respectively. They said the development at the official market was affecting the black market.
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