CBN finally ‘frees’ the naira…to be determined by market forces

The Central Bank of Nigeria (CBN) has finally let go of pegs on the naira, allowing the market forces to determine the true value of the local currency against other currencies across the world.

This was disclosed by Godwin Emefiele, governor of the bank, who spoke at a press conference in Abuja on Wednesday.

Emefiele said the bank will operate a single trading window, which will take off on June 20, 2016, adding that the CBN will only step in from time to time regulate the market.

He said the bank will appoint less than a dozen primary dealers who would now be in charge of foreign exchange trading, driving flexibility in the system.

“The market shall operate as a single market 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,” Emefiele said.

“The CBN would participate in the Market through periodic interventions to either buy or sell FX as the need arises; to improve the dynamics of the market, we 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.

“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.

The governor added that the 41 banned items remain banned, and cannot access forex from the new window.

CBN had initially applied a peg on the naira, keeping it at 197 to the greenback on the parallel market, while the parallel market rate spiralled gradually away from the official price to trade at 368 to the greenback on Tuesday.

“The Forty-One (41) items classified as ‘not valid for foreign exchange’ as detailed in a previous CBN Circular shall remain inadmissible in the Nigerian FX market.

“The CBN expects all authorized 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 emphasize 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 FX dealing license 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.”