Top on the list is the unveiling of the much-awaited flexible foreign exchange policy, which it said, would launch a forex interbank trading window that will be determined by market forces.
The new policy effectively removes controls on the naira, and is expected to increase dollar supply and help the nation’s weak economy.
Making the announcement in Abuja, the CBN Governor, Godwin Emefiele, who asked Nigerians not to be alarmed, said the apex bank would operate a single trading window to be launched next Monday.
The new window will have about 10 primary traders, to be appointed by the CBN. Each trader will have a minimum volume of $10 million, he said.
He said the new mechanism would enable businesses plan their portfolio effectively without fear of losses in event of fluctuation in exchange rates.
“We are optimistic that the steps we have taken today will further deepen the market and help get foreign exchange into the market. I will say to Nigerians, be calm, there is no need to worry, everything is well,” Emefiele said.
The CBN boss also stated that the 41 items banned last year from access to forex remained banned.
“We’re talking about an open, transparent two-way system… It’s intended; we don’t have speculators and rent-seekers. I don’t expect that any other exchange rate will be recognized,” he also explained.
The CBN witnessed a significant decline in its Foreign Exchange Reserves from about $42.8 billion in January 2014 to about $26.7 billion as at 10th June 2016.
Over time, the demand for foreign exchange has risen significantly. For example, in 2005, when oil prices were about $50 per barrel for an extended period of time, Nigeria’s average import bill was N148.3 billion per month.
In contrast, average import bill for 2015 was about N917.6 billion per month. The interplay between reduced FX Supply and rising FX demand accounted for a substantial reduction in the country’s foreign exchange reserves.
According to Emefiele, “Our Reserves, despite having fallen, is still robust and is able to cover about 5 months of Nigeria’s imports as against the international benchmark of 3 months.
“In order to avoid further depletion of the reserves, the CBN took a number of countervailing policy actions, anchored on the prioritisation of the most critical needs for foreign exchange as well as maintaining stability in the exchange rate.
“Having allowed two adjustments from August 2014 to February 2015, we decided to manage the Naira-Dollar Exchange Rate at about N197/US$1 over the last 16 months, and then provide the available but highly limited foreign exchange to meet the following needs,” he added.
The Nigerian foreign exchange market has witnessed tremendous changes. The Second-tier Foreign Exchange Market (SFEM) was introduced in September, 1986, the unified official market in 1987, the autonomous Foreign Exchange Market (AFEM) in 1995, and the Inter-bank Foreign Exchange Market (IFEM) in 1999.
Bureaux de Change were licensed in 1989 to accord access to small users of foreign exchange and enlarge the officially recognised foreign exchange market. Exchange rates in the Bureaux de Change are market determined.
A parallel market for foreign exchange has been in existence since the exchange control era. It has been established that scarcity in the official sector and bureaucratic procedures necessitated the growth and development of the parallel market.
Nigeria has been dealing with the effects of significant global shocks, which began around the third quarter of 2014. These include: the over 70 percent drop in the price of crude oil, which contributes the largest share of Nigeria’s Foreign Exchange Reserves; Global growth slowdown and geopolitical tensions along critical trading routes in the world among others.
Spurce: blueprint.ng
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