 |
| Godwin Emefiele, CBN Governor |
The Central Bank of Nigeria,
CBN, on Wednesday formally unveiled the much-awaited flexible foreign exchange
policy, saying it would launch a forex interbank trading window that will be
purely market-driven.
Media
report continues:
The
new policy effectively removes controls on the naira, and is expected to
increase dollar supply and help the nation’s weak economy.
Making
the announcement in Abuja on Wednesday, CBN governor, Godwin Emefiele, said the
bank will operate a single trading window, to be launched on Monday.
The
new window will have about 10 primary traders, to be appointed by the bank.
Each trader will have a minimum volume of US$10 million, he said.
He
said the new mechanism would enable businesses plan their portfolio effectively
without fear of losses as a result fluctuation in exchange rates.
“We
are optimistic that the steps we have taken today will further deepen the
market and help get foreign exchange into the market. I will say to Nigerians
be calm, there is no need to worry, everything is well,” Mr. Emefiele said.
 |
In
this Tuesday Oct. 20, 2015 file photo, a money changer counts Nigerian naira
currency at a bureau de change, in Lagos Nigeria. (AP Photo/Sunday Alamba)
|
Nigeria Central
Bank Floats Embattled Naira Currency
Associated
Press reports that Nigeria will float its embattled naira currency, the Central
Bank governor announced Wednesday after months of pressure to control a
spiraling crisis in Africa's biggest economy.
Gov.
Godwin Emefiele told reporters the naira rate will be "market-driven"
from June 20.
Critical
foreign currency shortages caused by slumping oil prices forced a policy change
that President Muhammadu Buhari had resisted for months. The bank had defended
the naira at a rate of 197 to the dollar while the currency was trading at up
to 370 on the parallel market .
"They
have to accept reality at some point after a period of denial," said Ayo
Teriba, CEO of Economic Associates consultancy. Companies were unhappy with the
government forcing them to exchange their imported foreign exchange at the low
fixed rate and, when they needed to buy some, use the parallel market at the
much higher rate, he told The Associated Press.
Emefiele
indicated a floating naira should get rid of speculators.
There
will be only one exchange rate in "an open, transparent system," he
said.
Companies
have gone bust, tens of thousands of workers have lost their jobs and militant
attacks have shrunk oil production as Nigeria's economy contracted for the
first time in nearly 20 years.
Companies
with naira earnings that the government has refused to allow them to repatriate
will take a hit. International airlines are holding the equivalent of US$600
million at the old exchange rate, according to the International Air Transport
Association.
Analysts
warn of expected interest rate hikes to tackle double-digit inflation.
"These
actions are a down payment on our people's ability to succeed," Buhari,
under pressure to devalue since his March 2015 election, wrote Wednesday in The
Wall Street Journal.
"Longstanding
structural imbalances and overdependence on imports have been cruelly
exposed," Buhari wrote. "We are an oil-rich nation that imports most
of our gasoline. We are a farming nation that imports most of our basic food
staples."
Many
Nigerians criticized the delay. "And they finally float the Naira, 9
months late. It will take us 2 years to recover from this unnecessary
stubbornness," one said on social media.
Another
bitter commentator posted: "So we crashed our whole economy, killed
business, killed bank jobs, suffered hyperinflation for NOTHING. We have
floated the Naira — too late."
But
Kevin Daly of Aberdeen Asset Management said he was "pleasantly
surprised." Many had expected the government to devalue, but not enough.
He said it remained to be seen what the government can do to provide liquidity
with foreign currency reserves some US$10 billion below the published figure of
US$26 billion.
The
gap between the value of exports and imports will decide the new naira rate,
Teriba said.
Daly
said the weakened naira would fuel inflation but "this is the price they
have to pay for a failed policy ... which has been like a noose round the neck
of Nigeria's economy."
13 Things To Know
About Nigeria’s New Forex Policy
Media
reports that the Central Bank of Nigeria, CBN, on Wednesday formally unveiled
the much-awaited flexible foreign exchange policy that would allow the foreign
exchange interbank trading window to be driven purely by market forces.
The
new policy effectively removes controls on the naira, allowing increased dollar
supply that would help strengthen the country’s weak economy.
CBN
governor Godwin Emefiele, said in Abuja at the formal announcement that the new
framework would operate a single trading window, to be launched on Monday, with
about 10 primary traders, to be appointed by the bank.
Each
trader will have a minimum volume of US$10 million.
Mr.
Emefiele said Nigeria’s foreign exchange reserves declined from about US$42.8
billion in January 2014 to about US$26.7 billion as of June 10, 2016, with
average monthly inflows falling from about US$3.2 billion to current levels
below a billion dollars per month.
Despite
these outcomes, the CBN governor said the demand for foreign exchange rose
significantly, from an average import bill of ₦148.3 billion per month in 2005,
to about ₦917.6 billion per month in 2015.
To
avoid further depletion of the reserves, Mr. Emefiele said the CBN opted to
adopt policy actions to prioritize the most critical needs for foreign exchange
as well as maintaining stability in the exchange rate.
The
areas of priority included honouring matured letters of credit from commercial
banks, importation of raw materials, plants, and equipment, importation of
petroleum products, and payments of school fees, and related expenses.
He
said the CBN was able to stabilize the exchange rate since February 2015, and
eliminated speculators and rent-seekers from the foreign exchange market.
“Our
Reserves, despite having fallen, is still robust and is able to cover about
five months of imports as against the international benchmark of three months,”
the CBN governor said.
He
said it was time to restore the automatic adjustment mechanism of the exchange
rate, with the re-introduction of a flexible inter-bank exchange rate market.
The
workings of the market, he explained, would be consistent with the CBN’s
objectives of enhancing efficiency and facilitating a liquid and transparent
foreign exchange market.
Key
highlights of the framework include:
1.
The market shall operate as a single market structure through the
inter-bank/autonomous window;
2.
The Exchange Rate will be purely market-driven using the Thomson-Reuters Order
Matching System as well as the Conversational Dealing Book;
3.
The CBN will participate in the Market through periodic interventions to either
buy or sell FX as the need arises;
4.
To improve the dynamics of the market, CBN 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;
5.
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;
6.
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;
7.
The 41 items classified as “Not Valid for Foreign Exchange” as detailed in a
previous CBN Circular shall remain inadmissible in the Nigerian FX market;
8.
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;
9.
Sale of FX Forwards by Authorized Dealers to end-users must be trade-backed,
with no predetermined spreads;
10.
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.
11.
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;
12.
Proceeds of Foreign Investment Inflows and International Money Transfers shall
be purchased by Authorized Dealers at the Daily Inter-Bank Rate; and
13. Non-oil exporters are
now allowed unfettered access to their FX proceeds.
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