As part of its ongoing foreign exchange market reforms, the Central Bank of Nigeria (CBN) on Friday announced that it has discontinued the cap (limit) on the spread of interbank foreign exchange transactions and also lifted restrictions on the sale of interbank proceeds. The apex bank, which dis- closed this in a circular to authorised dealers, titled, “Removal of the spread on foreign exchange transactions,” signed by the Director, financial markets department, Omolara Duke, reiterated that authorised dealers should continue to conduct their foreign exchange transactions on a “Willing Buyer and Willing Seller” basis. It also stated that authorised dealers should strictly adhere to, “high ethical standards in their dealings in the foreign exchange market” adding that, “This includes but is not limited to adopting appropriate price disclosure and transparency for transactions.”
Furthermore, the regulator reminded the dealers that, “all executed transactions are to be recorded immediately on the relevant treasury systems and reported to market authorities as stipulated.” Analysts believe that with its latest circular, the CBN might be paving the way for a free float of the naira. Last week, the apex bank announced a raft of measures aimed at ensuring that the naira’s value on the official market is deter- mined by supply and demand dynamics. Specifically, it first issued a circular in which it warned that it would sanction authorised dealers and their customers found to be reporting, “Inaccurate and misleading information” on foreign exchange and fixed income transactions.
It subsequently issued another circular in which it announced limits on how much banks can hold in foreign currencies. In the circular entitled: “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” the CBN announced a limit on lenders’ net open positions of 20 per cent of shareholders’ funds for short po- sitions and a zero limit for long positions and ordered banks to harmonise reporting. Stating that excess net open dollar positions on banks’ balance sheets have created an incentive for lenders to hold foreign currency, thus exposing them to currency and other risks, the apex bank directed them to bring their exposures within the set limits immediately (February 1st 2024), which meant that banks would have to sell down or face sanctions including suspension from the currency market.
In addition, the regulator said lenders would be required to have liquid foreign assets to cover maturing foreign currency obligations and directed them to also have a foreign exchange contingency funding arrangement with other institutions. It followed up on the issuance of the circular by announcing the scrapping of the limit on the ex- change rate quoted by International Money Transfer Operators (IM- TOs), stating that the IMTOs could now quote the naira exchange rate against the dollar, “based on the prevailing market rates at the Nigerian Foreign Exchange Market on a willing seller, willing buyer basis.” This meant that the CBN had removed the previous exchange rate cap on such transactions of -2.5% to +2.5% around the previous day’s closing rate of the Nigerian Foreign Exchange Market.
Saturday Telegraph reports that in his presentation at the resumption of the sectoral debate series organised by the House of Representatives on Tuesday, CBN Governor, Olayemi Cardoso, assured Nigerians that measures to boost dollar liquidity were starting to make a difference as transaction volumes on the official market totaled $844 million on Monday, February 5. He said: “This is the first time in many years it has achieved this level. I want to emphasize that we are now at a turning point. “I’m confident that positive outcomes are already emerging and will become more apparent in the near future.”