Nigeria’s Central Bank Sells $543.5 Million to Stabilize Foreign Exchange Market
The Central Bank of Nigeria (CBN) has announced that it sold $543.5 million to authorized dealer banks between September 6 and 30, in a bid to reduce market volatility driven by high demand for commodity imports and seasoned demand for foreign exchange (fx).
According to Omolara Duke, Director of the Financial Markets Department at the CBN, the transaction was conducted through a two-way quote at the Nigeria Foreign Exchange Market (NFEM) on 11 dealing days. The value date for all transactions was T+2, which refers to the settlement dates of security transactions that occur on a transaction date plus two days.
The CBN’s move is aimed at providing guidance on the pricing of fx, with Duke stating that the bank will continue to facilitate the supply of fx into the NFEM as part of its holistic fx management strategy. The bank has also introduced an Electronic Foreign Exchange Matching System (EFEMS) to enhance governance, transparency, and facilitate a market-driven exchange rate that is accessible to the public.
The EFEMS is expected to reduce speculative activities, eliminate market distortions, and give the CBN improved oversight capabilities to effectively regulate the market. Authorized dealers will conduct all foreign exchange transactions in the interbank Fx market on the EFEMS approved by the CBN, with transactions reflected immediately.
A two-week test run is scheduled for November, after which the apex bank will publish real-time prices when the EFEMS becomes operational. The CBN will also buy and sell orders from the system and collaborate with the Financial Markets Dealers Association (FMDA) to publish the rules for the EFEMS.
The Nigerian FX Code and revised Market Operating Guidelines for the Nigeria Foreign Exchange Market will also provide guidance to market participants. Authorized dealers are required to comply with extant guidelines and regulations governing the Nigeria foreign exchange market, ensuring that all necessary documentation, training, and systems integrations are concluded ahead of the go-live date.
The CBN’s efforts aim to stabilize the foreign exchange market and ensure a more transparent and efficient system for foreign exchange transactions in Nigeria.
