….Sets $10m minimum for participation
Following the introduction of a flexible exchange rate regime three weeks ago, the Central Bank of Nigeria (CBN) has unveiled the much anticipated guidelines paving the way for the one window foreign exchange structure .
Central Bank Governor, Mr. Godwin Emefiele who disclosed this in a world press conference to herald the new regime in Abuja said the foreign exchange market will operate as single market structure.
While setting a minimum transaction participation at $10 million, he said the players would involve Foreign Exchange Primary Dealers(FXPD) and Non-Primary Dealers(NFXPD), adding that the apex bank will not allow a situation whereby the system will be compromised by speculators and rent-seekers and enjoined market participants to support the process.
The Governor further said that liquidity would not be a problem and gave assurance that as long as there is only one window, the outcome will be the rate recognized in the market.
The Foreign Exchange Primary Dealers (FXPDs) system is one whereby interested Authorized Dealers are accorded access to transact FX products directly with the CBN.
According to the Emefiele the main objectives for the establishment of Primary Dealership in FX products are: to achieve exchange rate management policy objectives, to improve the effectiveness of CBN FX market intervention activities, and to enhance market liquidity.
He said the guidelines set the requirements, responsibilities and minimum standards for FXPDs, adding that each FXPD must continuously meet the standards set out in the guidelines and such other standards, rules and regulation as may be prescribed by the CBN from time to time.
The CBN Governor further emphasized that the nature of its relationship with the FXPDs is primarily a counterparty relationship, stressing that market stakeholders are reminded that the designation of an entity as an
FXPD by the CBN shall in no way constitute a public endorsement of the superior financial soundness of that entity over non FXPDs by the CBN nor
should such designation be viewed as a replacement for prudent counterparty risk management and due diligence.
The dollar currently trades at N365 on the parallel market.
At the last MPC meeting held last month, members agreed to hold all policy rates constant and introduce greater flexibility in managing the forex rate. As a result of this, a lot of investors were cautiously optimistic and indeed excited.