CBN Announces Unification Of All Exchange Rate Windows
The Central Bank of Nigeria (CBN) has announced the unification of all segments of the Forex market collapsing all windows into one. This was part of a series of immediate changes to operations in the Nigerian Forex Exchange (FX) Market, in a bid to improve liquidity and stability.
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According to the press released and 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 the market forces.
2. Reintroduction of 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 day’s executed transactions at the I&E window, rounded to two decimal places.
4. Prohibiting trading limits on oversold FX positions and allowing hedging of the short positions with OTC futures. Limits on overbought positions will be zero.
5. Reintroducing order-based two-way quotes, with a bid-ask spread of N1. All transactions will be cleared by the Central Counter Party (CCP).
6. Reintroducing an Order Book to ensure transparency of orders and seamless execution of trades.
7. The Central Bank of Nigeria (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 June 30, 2023.
Based on the changes mentioned in the news above, the exchange rate in the Nigerian Foreign Exchange (FX) Market will now be determined by market forces.
Finally, the move toward a single window and the use of market forces to determine the exchange rate signifies a shift toward a more flexible and market-driven exchange rate system, which can bring about greater liquidity and stability in the Nigerian FX Market.
