By Niyi Olaoye
Following the announcement by the Central Bank of Nigeria (CBN) on plans to clear all existing backlog of Foreign Exchange (forex) demand in the country and the recent commencement of trading on the Nigeria Interbank Foreign Exchange (NIFEX), the naira plunged to 280 against the dollar at the interbank market on Monday evening as the Central Bank of Nigeria (CBN) sold foreign exchange to 21 bidding banks to clear the forex backlog and solve liquidity problems.
The naira which opened on Monday at about 253 to the dollar at the interbank market went up to 263, before settling at 260 in the evening.
Similarly, the Acting Director of Communications (CBN) Mr. Isaac Okorafor, said that the move was to ensure the survival of the inter-bank forex trading under the new forex guidelines, which took effect from Monday, June 20.
The CBN forex backlog is estimated at four billion dollars. Okorafor said that all existing legitimate forex demand for imports, school fees and medicals, among others, would be met.
“In order to engender confidence, ensure credible price formation and sustain the integrity of the Nigerian inter-bank forex market, the CBN has resolved to clear all the back log of forex demand in the country. “This will be done through spot and forward settlements,” he said.
While unveiling the broad forex market framework, Godwin Emefiele, Governor, Central Bank of Nigeria (CBN), had said the FXPDs will be able to deal in minimum sizes of $10 million for spot transactions and at least $5 million for forwards, Forex swaps and futures.
The Foreign Exchange Primary Dealers (FXPDs) system is one where interested Authorized Dealers are accorded access to transact FX products directly with the CBN.
FX Primary Dealers (FXPD) authorised by the CBN would deal directly with the apex bank for large trade sizes on a two-way quote basis.
Under the guidelines for primary dealership in forex products, FXPDs will operate with other dealers in the Inter-bank market, amongst other obligations that will be stipulated in the Foreign Exchange Primary Dealers (FXPD) regulation.
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