The Central Bank of Nigeria (CBN) has announced the reintroduction of the retail Dutch auction system, set to commence this Wednesday.
The decision comes as the naira continues to face mounting pressure in the foreign exchange market, driven by high demand for dollars from both importers and summer tourists.
Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting, explained that the reintroduction aims to meet the burgeoning forex demand and stabilize the currency.
“The CBN has been trying to reduce activities on the forex window,” Olubunmi said. “But the reality is that the CBN will actually be the main supplier. They are creating this particular window to ensure that the naira stabilizes.”
The CBN’s retail Dutch auction system is a revival of a previously utilized mechanism designed to ensure that legitimate forex transactions are met.
Historically, the central bank has employed both retail and wholesale currency auctions to supply dollars to the market. The retail auction directly serves customers, while the wholesale auction provides dollars to banks.
According to a circular issued by the CBN, the upcoming sale is in response to the “growing unmet foreign exchange demand,” which has exacerbated pressure on the naira’s exchange rate.
The circular called on authorized dealer banks to compile and submit a list of all outstanding FX demands by end users.
“The CBN will undertake a Retail Dutch Auction System to mitigate the demand for eligible transactions,” the circular stated. The reintroduced retail forex auction is scheduled for August 7.
Olubunmi noted that the CBN’s decision is a crucial step in preventing further devaluation of the naira.
“The reality is that the CBN will still be the main supplier of forex,” he reiterated. “Reintroducing the retail Dutch auction will support the naira and stem devaluation.”
The naira has recently faced significant pressure due to seasonal demand from summer tourists and importers.
On Friday, the currency lost 2.9 percent to close at N1,617/$, according to data from FMDQ, as compiled by Bloomberg.
Over the past year, the naira has declined by approximately 70 percent, following reforms intended to allow it to trade freely and attract foreign inflows.
The CBN has taken multiple measures to alleviate pressure on the naira, including selling dollars to Bureau De Change (BDC) operators.
This latest step, reintroducing the retail Dutch auction, is seen as part of a broader effort to ensure stability in the foreign exchange market and bolster public confidence in the naira.
Industry analysts believe that the auction will provide much-needed relief to businesses and individuals struggling with forex shortages.
By ensuring a steady supply of dollars, the CBN hopes to ease the pressure on the naira and create a more stable economic environment.
