The Central Bank of Nigeria (CBN) on Wednesday said it would allow the naira exchange rate to be market-driven, setting the stage for a devaluation of the currency when the new system comes into effect.
The CBN Governor, Mr. Godwin Emefiele, who announced the policy while briefing journalists at the central bank’s headquarters in Abuja, explained that interbank trading under the new guideline would begin on Monday.
There will only be one exchange rate and the bank will intervene in the market “as the need arises,” Governor Godwin Emefiele told reporters in Abuja, the capital, Wednesday.
“We’re talking about an open, transparent two-way system,” Emefiele said. “It’s intended we don’t have speculators and rent-seekers. I don’t expect that any other exchange rate will be recognized.”
Giving some of the highlights of the new policy, the governor said based on the new foreign exchange guideline, the value of the naira against other currencies would be market-driven.
To implement the new policy, the governor said the central bank would on Friday appoint primary and secondary dealers adding that their dealership level would be categorised based on the volume of transaction such an institution can handle.
He said based on the assessment of the CBN, the number of primary dealers would be between eight and ten financial institutions with a minimum transaction volume of $10m.
He said, “We’ve decided that the CBN will deal primarily with what we call the foreign exchange primary dealers. We will have non primary dealers and primary dealers.
“The guidelines for the qualification for being a foreign exchange primary dealer would be on our website.
“There are a number of qualifications: either the size of the bank or the size of forex transactions it had done before; the level of liquidity; the extent to which those banks have complied with CBN guidelines; regulations in the past and their level of preparedness in terms of being able to provide all the soft and hardware that is needed to operate in a very transparent manner.
“But from what we see, we do not think there’ll be more than a maximum of eight or 10 primary dealers. What that means is that you have what we can call grade A dealers and you have the grade B dealers.
“From what would be published, you will find that the level of trades as a primary dealer will be a minimum of $10m.
“We are talking about a minimum of $10m and to do that, you have to have a strong capacity, you must have prepared yourselves, you have to be ready to play with the highest level of professionalism and transparency and that nobody is going to take any nonsense from you if you decide to breach the regulations or guidelines.
“And that’s the reason I said we will expect those who are going to deal here to be people who can deliver on their words.”
He also said the market would operate as a single market structure through the inter-bank/autonomous window; while the exchange rate would be purely market-driven using the Thomson-Reuters Order Matching System as well as the Conversational Dealing Book.
The CBN, according to him would also participate in the foreign exchange market through periodic interventions to either buy or sell foreign exchange as the need arises.
