Nigeria Implements Bold Reforms, Unifies Forex Market for Enhanced Stability

In a historic move, the Central Bank of Nigeria (CBN) announced the implementation of a unified foreign exchange window, marking a paradigm shift in the country’s foreign exchange landscape.

Under the new framework, all segments of the forex market have been collapsed into a single entity, the Investors and Exporters (I&E) window. This consolidation replaces the previous system of multiple windows catering to specific transaction types, bringing about a more streamlined and efficient market structure.

One of the most significant changes is the adoption of a market-driven exchange rate system. Gone are the days of a fixed exchange rate, as the value of the Naira will now be determined by the forces of supply and demand within the I&E window.

Furthermore, the reintroduction of the “Willing Buyer, Willing Seller” model within the I&E window offers greater flexibility and choice to eligible transactions. Participants can now transact at their preferred exchange rates, fostering an environment of transparency and fair pricing.

The reforms also address the issue of government-related transactions. The CBN will set the operational rate for such transactions based on the weighted average rate of the previous day’s executed transactions within the I&E window. This measure aims to provide stability and predictability, instilling confidence in both domestic and international investors.

The lifting of trading limits on oversold FX positions and the permission to hedge short positions with Over-The-Counter (OTC) futures mark a significant shift in risk management practices. Market participants now have more freedom to manage their currency portfolios, which is expected to attract more foreign investment and promote market liquidity.

To ensure transparency and efficient execution, the reintroduction of order-based two-way quotes, with a fixed bid-ask spread of N1, brings clarity to buying and selling prices. All transactions will be cleared by a Central Counter Party (CCP), enhancing market integrity and reducing counterparty risks.

In a bold move to enhance transparency, an Order Book will be reintroduced. This will enable market participants to have clear visibility of orders, facilitating seamless execution and further bolstering confidence in the market.

Alongside these transformative measures, the CBN has decided to cease two schemes aimed at boosting remittances and forex supply, namely the RT200 Rebate Scheme and the Naira4Dollar Remittance Scheme. This strategic decision aligns with the overall restructuring of the forex market and ensures a cohesive and comprehensive approach to reform.