CBN Removes Cap on Interbank FX Transactions in Ongoing Reforms

 

CBN Removes Cap on Interbank FX Transactions in Ongoing Reforms

In a circular dated February 8, the Central Bank of Nigeria (CBN) announced the removal of the ±2.5% cap spread on interbank foreign exchange (FX) transactions. The circular, signed by CBN Director of Financial Markets, Omolara Omotunde Duke, highlights the central bank's commitment to fostering a "market-based price discovery system" in line with ongoing FX market reforms.

Key Points from the Circular

• The CBN discontinues the ±2.5% cap on the spread for interbank FX transactions and removes restrictions on the sale of interbank proceeds.

• Authorized Dealers are instructed to conduct their foreign exchange transactions on a "Willing Buyer and Willing Seller" basis, emphasizing high ethical standards, including transparent price disclosures.

• All executed transactions must be promptly recorded on relevant treasury systems and reported to market authorities as stipulated.

Background

• A circular issued on August 9, 2023, imposed an exchange rate cap spread of ±2.5% for International Money Transfer Operators (IMTOs) and banks based on NAFEM's previous day's closing rate.

• However, on January 31, another circular removed the exchange rate cap for IMTOs, aligning with the CBN's strategy to liberalize the market and adapt to current market realities.

• The move effectively discontinues a guideline from the 2016 "Revised Guidelines for the Operation of the Nigerian Inter-bank Foreign Exchange Market," which stated that inter-bank funds shall not be sold to Bureau-de-Change (BDC).

• With the recent directive, authorized dealers in the inter-bank FX market can now sell proceeds to BDC operators and other willing buyers outside the market.

The CBN's decision reflects its commitment to creating a more dynamic and market-responsive FX environment, emphasizing transparency and ethical conduct in foreign exchange transactions.