CBN in a circular dated February 8 has removed the ±2.5% cap spread on interbank FX transactions. The circular also notes that restrictions on the sale of interbank proceeds have also been removed.
According to the circular signed by the CBN Director of Financial Markets, Omolara Omotunde Duke, the directive is in line with the objectives of the CBN’s current FX market reforms, which is to promote a “market-based price discovery system.”
What the Circular says
- “A key objective of the ongoing foreign exchange market reforms by the Central Bank of Nigeria to promote a market-based price discovery system.”
- “Consequently, the Bank hereby discontinues any cap on the spread on interbank foreign exchange transactions and restrictions on the sale of interbank proceeds.”
- “Authorized Dealers are to continue to conduct their foreign exchange transactions on a “Willing Buyer and Willing Seller” basis. In addition, they are to strictly adhere to high ethical standards in their dealings in the foreign exchange markets. This includes but not limited to adopting appropriate price disclosures and transparency for transactions.”
- “Please note that all executed transactions are to be recorded immediately on the relevant treasury systems and reported to market authorities as stipulated.”
What you should know
In a circular referenced TED/FEM/PUB/PC/001/006 issued on August 9,2023, the CBN directed an exchange rate cap spread of ±2.5% of NAFEM’s previous day’s closing rate, for International Money Transfer Operators (IMTOs) and banks.
However, on January 31, the CBN released another circular removing the exchange rate cap for IMTOs. The move by the CBN aligns with the idea of liberalizing the market in order to allow the market to move in line with current market realities.
In June 2016, the CBN released the “Revised Guidelines for the Operation of the Nigerian Inter-bank Foreign Exchange Market”.
According to the guidelines, allowed participants in the inter-bank FX market include the “Authorised Dealers, Authorised Buyers, Oil Companies, Oil Service Companies, Exporters, End-users, and any other entity the CBN may designate from time to time.”
A significant part of the 2016 guidelines was “Inter-bank funds shall NOT be sold to Bureau-de-Change.”
However, with the new directive by the CBN, this guideline is effectively discontinued. What this entails is that authorised dealers in the inter-bank FX market would be able to sell the proceeds from the market with BDC operators as well as other willing buyers outside the market. (Nairametrics)
