The Central Bank of Nigeria on Wednesday, released guidelines for the new flexible foreign exchange policy.
The announcement was made by governor of the apex bank, Godwin Emefiele, during a press conference in Abuja.
The CBN governor disclosed that the new policy will officially begin on Monday,June 20.
Here are 15 key things to know about the new forex policy.
1. Based on the new flexible foreign exchange policy, exchange rate will be purely market-driven.
2. Non-oil exporters now allowed unfettered access to their FX proceeds while the forex market is to operate as a single market structure through the inter-bank/autonomous window.
3. The Central Bank of Nigeria will only participate in the market through periodic interventions – either to buy or sell forex. There will be only one FX market which shall operate as a single market structure through the inter-bank/autonomous window.
4. CBN will introduce forex Primary Dealers to deal on large trade sizes on a two-way quotes.
5. The CBN “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, which would also be released immediately after this Press Briefing.”
6. Forex primary dealer have to meet the following criteria: Minimum Shareholders Fund unimpaired by losses of at least ?200bn; minimum of N400bn in Total Foreign Currency and minimum Liquidity Ratio of 40 per cent.
7. Primary dealers to operate with other dealers in the interbank market.
8. No predetermined spread on forex spot transactions executed through the CBN intervention with Primary Dealers.
9. CBN may offer long-tenored forex Forwards of six to 12 months or any tenor to Authorised Dealers and also introduce non-deliverable over-the-counter naira-settled futures.
10. The 41 invalid items are still “Not Valid for Foreign Exchange” as detailed in a previous CBN circular shall remain inadmissible in the Nigerian FX market. Therefore, they would source from parallel market.
11. Proceeds of foreign investment inflows and international money transfers shall be purchased by authorised dealers at the Daily Inter-Bank Rate; and non-oil exporters are now allowed unfettered access to their FX proceeds, which shall be sold in the inter-bank market.
12. The selected FX primary dealers will be notified by Friday June 17, 2016, according to Emefiele. All other non-primary dealers would remain valid and eligible to participate in the market. Inter-bank trading under the new guidelines will begin on Monday June 20, 2016.
13. Forex dealers shall have a maximum limit of +0.5%/- 10% of their Shareholders’ Funds unimpaired by losses as Foreign Currency Trading Position Limits. Where an FXPD requires a higher position limit to accommodate a customer trade, the FXPD shall contact the Director, Financial Markets Department. Where the request is assessed as valid, the Director shall communicate immediate approval by text or email to the FXPD. Thereafter, the FXPD must, with 24 hours, write to the Director, Financial Markets Department who will thereafter communicate an approval in writing.
14. FXPDs’ performance evaluation shall be carried out on a points-based system, which shall be communicated in due course. The CBN shall also conduct half-yearly evaluations which shall be disseminated to FXPDs strictly as feedback on their performance.
15. FXPDs shall be required to resell a minimum of 70% of any uptake from the CBN in the inter-bank market on the day of purchase.