Godwin Emefiele, CBN Governor |
The flexible
foreign exchange (forex) management basically means the adoption of a
market-driven exchange rate policy of the naira against other currencies. The
new policy, CBN Governor, Godwin
Emefiele, said, would be a single window market. He reassured holders of
all backlog of mature letters of credits (LCs) that they would be cleared
immediately while primary dealers operators expected to be the major link
between the apex bank and the market are expected to possess a minimum paid-up
capital of $10 million.
Emefiele
gave the assurance yesterday in Abuja while unfolding the framework of the
much-anticipated new forex regime announced by the Monetary Policy Committee (MPC) of the apex bank penultimate week
in Abuja as part of measures to address on a permanent basis the inadequate
supply of foreign exchange occasioned by the declining fortunes from oil
minerals proceeds.
An estimated $5 billion has in the past three years gone down the drain from the country’s foreign reserves trying to support the value of the naira against other currencies of the world.
The CBN
governor explained that the assurance of enough supply of forex in the market
to meet the demand was based on the fact that Nigeria, despite the depletion in
the foreign reserves, still has a robust war chest far above the
internationally recommended threshold and reassured that the apex bank would
continue to intervene in the market.
Emefiele
said: “Take it easy, there is no need for everybody to
rush to the market because you may even hurt yourself doing so. The steps we
have undertaken will equally deepen the market as investors who have been
standing on the sidelines too would be coming in. We have also committed
ourselves with the level of guarantees that we are offering. Therefore be calm.
There is no cause for alarm.”
He gave some
highlights of the new forex regime’s operational framework which
include: the market shall operate as a single structure through the
inter-bank autonomous window; the exchange rate would be purely market-driven
using the Thomson-Reuters Order Matching System as well as the Conversational
Dealing Book; and the CBN would participate in the market through periodic
interventions to either buy or sell FX as the need arises.
He also said:
“In order to improve the dynamics of the market, we
will introduce Foreign Exchange Primary Dealers (FXPD) who would be
registered by the CBN to deal directly with the bank for
large trade sizes on a two-way quote basis. Also, these primary dealers shall
operate with other dealers in the inter-bank market, amongst other obligations
that will be stipulated in the FXPD guidelines” which he said would be
released after the briefing.
“Other
aspects of the framework include that there shall be no predetermined spread on
forex spot transactions executed through the CBN intervention with primary
dealers, while all forex spot purchased by authorised dealers are transferable
in the inter-bank forex market; the 41 items classified as ‘Not Valid for
Foreign Exchange’ as detailed in a previous CBN circular remain
inadmissible in the Nigerian forex market.”
Besides,
non-oil exporters are now allowed unfettered access to their forex proceeds,
which shall be sold in the inter-bank market. He announced that in terms
of timelines, management of the CBN agreed to among other things, release
immediately the detailed operational guidelines for the Flexible Foreign
Exchange Market as well as the guidelines for the selection and operations
of Forex primary dealers who would be notified by tomorrow; all other
non-primary dealers would remain valid and eligible to participate in the
market inter-bank trading under the new guidelines to begin on June
20, 2016; and finally that the tenors and rates for the
over-the-counter naira-settled forex futures will be announced on June 27,
2016.
Warning that the apex bank would view infraction by operators seriously, he reassured that the bank would make adequate provision for forex supply.
He said: “Let me
note that the Central Bank is strongly determined to make this market
as transparent, liquid, and efficient as possible. Therefore, we would
neither tolerate unscrupulous behaviour nor hesitate to bring serious
sanctions on offenders. The CBN expects all authorised dealers
particularly to display the highest level of professionalism. We expect them to
understand the spirit and letter of this transition to a market-based
system. The CBN will not allow the system to be undermined
by speculators and rent-seekers. Permit me to emphasise 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 Forex dealing licence of an
offending authorized dealer.
“I
therefore urge market participants to assist us in ensuring that this new
system enables the CBN to pursue its mandate in a more effective
and efficient manner, which guarantees preservation of our scarce
commonwealth, stability of our financial system, and growth of our
economy to the benefit of all Nigerians. Over the intervening period,
we are happy to note that these policies have yielded some positive
developments.
“In
particular, we have managed to stabilise the exchange
rate since February 2015, thereby creating certainty for both
household and business decisions, and also underpinning the economic growth we
recorded in 2015. We have largely eliminated speculators and
rent-seekers from the Foreign Exchange Market”. (Guardian)
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