CBN Unifies all Exchange Rate Windows

The Central Bank of Nigeria (CBN)  unifies all exchange rate windows of all segments of the forex market by collapsing all windows into one.

This comes part of a series of immediate changes to the operations of the Nigerian Foreign Exchange (FX) Market, in a bid to 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 are

“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”.

Villamond Investment: Alafia Garden Ode Remo

In previous times the FX market had been grouped into different windows, but the recent announcements indicate that 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 the I&E window will be determined by market forces.

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

Villamond Investment: Ogere Industrial City

The CBN is reintroducing the Willing Buyer and Willing seller model at the I&E window. This means that transactions which are eligible to occur can exchange currencies at their preferred exchange rates.

“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”.

Operational rate for government-related transactions

“The CBN will set the operational rate for transactions related to the government. This rate will be the weighted average rate of the previous day’s executed transactions at the I&E window, rounded to two decimal places”.

“Prohibiting trading limits on oversold FX positions and allowing hedging of short positions with OTC futures. Limits on overbought positions will be zero”.

• This means that there will no longer be trading limits on oversold FX positions and short positions can be hedged with Over-The-Counter (OTC) futures. However, there will be zero limits on overbought positions.

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

“Two-way quotes with a bid-ask spread of N1 will be reintroduced”.

This means there will be a fixed difference between the buying and selling prices. All transactions will be cleared by a Central Counter Party (CCP).

“Reintroducing an Order Book to ensure transparency of orders and seamless execution of trades”.

Villamond Investment Limited

An Order Book will be reintroduced to ensure transparency of orders and smooth execution of trades.

The CBN has also announced the end of two schemes which were introduced to boost remittances and forex supply. These schemes include the RT200 Rebate Scheme and the Naira4Dollar Remittance Scheme. As from 30 June 2023, these schemes will no longer be in place.

The exchange rate in the Nigerian Foreign Exchange (FX) Market will now be determined by market forces.

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