The Central Bank of Nigeria (CBN) has announced the unification of all segments of the forex market collapsing all windows into one.
This was part of a series of immediate changes to operations in 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 include:
1. 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.
Previously, the FX market was divided into different windows, but now 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 this window will be determined by market forces.
2. Reintroducing the “Willing Buyer, Willing Seller” model at the I&E window, where all eligible transactions can access foreign exchange at their preferred rates.
Willing Buyer, Willing Seller model: The CBN is reintroducing this model at the I&E window. It means that eligible transactions can access foreign exchange at the rates they prefer.
3. 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.
4. Prohibiting trading limits on oversold FX positions and allowing hedging of short positions with OTC futures. Limits on overbought positions will be zero.