The news:
- The Central Bank of Nigeria (CBN) has announced the removal of the ±2.5% cap spread it had previously placed on interbank foreign exchange (FX) transactions, effective immediately.
- In the circular, released Thursday, February 8, 2023, and addressed to “All Authorised Dealers,” the apex bank stated that the initial restriction on the sale of interbank proceeds has also been discontinued.
- Signed by the Director of CBN’s Financial Markets Department, Omolara Omotunde Duke, the directive is part of the country’s financial regulator’s ongoing FX market reform efforts to encourage a market-based price discovery system.
This move means that market forces such as demand and supply, which are governed by buyer-seller interactions, will now determine the interbank foreign exchange rate.
All authorised dealers are mandated to conduct foreign exchange transactions on a "Willing Buyer and Willing Seller" basis while adhering strictly to high standards in all of their dealings in the Nigerian Foreign Exchange Market, such as implementing appropriate price disclosures and transaction transparency.
This news comes after the CBN, on January 31, released a counter policy that removed the exchange rate cap for IMTOs, making the Nigerian foreign exchange market more transparent and promoting market-driven exchange rates.
In its document titled "Revised Guidelines for the Operation of the Nigerian Inter-bank Foreign Exchange Market," released in June 2016, the CBN's list of allowed participants in the inter-bank FX market included authorised dealers, authorised buyers, oil companies, oil service companies, exporters, end-users, and any other entity the apex bank may designate from time to time.
A significant part of the 2016 guidelines prohibited the sales of Inter-bank funds to the Bureau-de-Change (BDC).
However, following the new CBN directive that has discontinued “restrictions on the sale of interbank proceeds,” authorised dealers in the inter-bank FX market can now sell market proceeds to BDC operators and other willing buyers outside the market.
The bankers' bank also required authorised dealers to record all completed forex transactions on the designated treasury systems and report them to the appropriate market authorities.
In a circular referenced TED/FEM/PUB/FPC/001/009 issued on September 13, 2023, the CBN reiterated that International Money Transfer Operators (IMTOs) and banks must quote an exchange rate cap of between -2.5% to +2.5% around the previous day’s closing rate of the Nigerian Foreign Exchange Market.
