CBN announces a new forex regime

The Central Bank of Nigeria (CBN) has announced a market-driven forex regime aimed at boosting the supply of foreign currency in the country.

The announcement was made on Wednesday by the CBN governor, Godwin Emefiele. The new policy would take effect as from June 20.

“We now believe that the time is right to restore the automatic adjustment mechanisms of foreign exchange rate with the reintroduction of the flexible interbank exchange rate market,” said Emefiele, in a statement.

“The market shall operate as a single market structure through the interbank and autonomous window,” he said, adding: “The foreign exchange rate will be purely market driven.”

He noted that foreign exchange futures market would be opened to ease demand on spot trading, reduce volatility and give businesses more certainty. He said the interbank trading window would aid economic growth and help restore investor confidence.

The CBN governor explained that the actual guidelines will be made public later on Wednesday, adding that the regime would have between eight and ten primary traders handling “minimum volumes of $10 million.”

The new move is backed by President Muhammadu Buhari who said on Twitter that the “greater flexibility” in forex policy, is “a down payment on our people’s ability to succeed”.

The President is keen on weaning Nigeria’s economy off its dependency on oil, which normally accounts for 70 percent of government revenue, as well as imports.

But with an imminent recession and crude production hit by militancy in the Niger delta, he faces a challenge to set the economy on a path of growth.

The CBN has pegged the naira at 199 to the US dollar since March last year but has come under pressure to devalue the currency further. Black market rates have seen the naira slump to as low as 365 to the dollar this week.

Emefiele, however, said the government would prevent the forex market from being controlled by speculators, harping on the need for dealers to be professional in their dealings.

“The CBN will not allow the system to be undermined by speculators and rent-seekers,” he said. He added that “any attempt to breach any aspect of this new framework will be heavily sanctioned by the CBN and this may indeed result in the suspension or withdrawal of the FX dealing license of an offending Authorized dealer.”