CBN Confirms Operational Changes To Foreign Exchange Market

The Central Bank of Nigeria (CBN) has announced the unification of all segments of the forex market collapsing all windows into one.What this means now, is that the exchange rate in the Nigerian Foreign Exchange (FX) Market will now be determined by market forces.Previously, there were different windows and a fixed exchange rate system in place.

However, with the recent changes, the exchange rate will be determined through the Investors and Exporters (I&E) window, where transactions will be conductedThe apex bank made the move as part of a series of immediate changes to operations in the Nigerian Foreign Exchange (FX) Market, a move that will improve liquidity and stability.According to a press release signed by the Director of Financial Markets, Angela Sere-Ejembi, PhD, and dated 14 June 2023, the changes include:

1. Abolishing the segmentation of the FX market into different windows. All transactions will now be done through the Investors and Exporters (I&E) window, where the exchange rate will be determined by market forces.

Applications for medicals, school fees, BTA/PTA, and SMEs would continue to be processed through deposit money banks.Previously, the FX market was divided into different windows, but now all transactions will be conducted through the Investors and Exporters (I&E) window.

This means even those applying for BTA and PTA will also pay the official exchange rate at the I&E window. The exchange rate in this window will be determined by market forces.

2. Reintroducing the Willing Buyer, Willing Seller model at the I&E window, where all eligible transactions can access foreign exchange at their preferred rates.

3. Setting the operational rate for all government-related transactions at the weighted average rate of the previous days executed transactions at the I&E window, rounded to two decimal places.

4. Prohibiting trading limits on oversold FX positions and allowing hedging of short positions with OTC futures.Limits on overbought positions will be zero.This move means trading limits on oversold FX positions will no longer be imposed, and short positions can be hedged with Over-The-Counter (OTC) futures. However, there will be zero limits on overbought positions.

5. Reintroducing order-based two-way quotes, with a bid-ask spread of N1. All transactions will be cleared by a Central Counter Party (CCP).

6. Reintroducing an Order Book to ensure transparency of orders and seamless execution of trades.The Order Book will be reintroduced to ensure transparency of orders and smooth execution of trades.

7. The CBN also announced the cessation of two schemes that were introduced to boost remittances and forex supply: the RT200 Rebate Scheme and the Naira4Dollar Remittance Scheme, effective from 30 June 2023.