What are the conditions of new flexible mode? What are its highlights? Read the information below to learn the latest news about Nigerian currency market.
Central Bank of Nigeria declared the automatic mechanism of regulation of exchange rate. It is the flexible currency mode aimed at reduction of pressure on Naira. CBN was under huge pressure to depreciate Naira for some time, resisting monetary and financial authorities. It claimed that last devaluations didn't bring benefit to economy, which is dependent from import. 'The central bank of Nigeria always claimed that it is necessary to control situations on places and to guarantee that the policy of bank changes depending on the facts and events, but not wishes of groups or sectors'.
Now we believe that it's time to restore the automatic mechanism of regulation of exchange rate with repeated inclusion in structure of flexible interbank market of exchange rate. Works of this market will be compatible to the purposes of bank. In these purposes is included strengthening of efficiency and simplification of the foreign exchange market. Highlights of the flexible mode are an action of the market as uniform structure through window of inter-bank.
Highlights of the new mode:
- The exchange rate is an operate market using system of compliance;
- CBN participates in the market by means of periodic interventions to buy or sell a currency at emergence of such requirement;
- To improve dynamics of the market, there are main dealers – FX (FXPD) registered by CBN to deal directly with bank of big trade sizes on a bilateral basis;
- These main dealers have to act with other dealers in the interbank market on the basis of obligations, which will be provided in foreign currency;
- To increase liquidity in the market, CBN can also offer long-tenored FX Forwards of 6 – 12 months or any tenor to authorized dealers;
- Sale of FX Forwards by authorized dealers to end users has to be supported by trade without the predetermined distribution;
- CBN has to make OTC Naira-settled Futures with daily rates on CBN. It is absolutely new product on the Nigerian foreign exchange market, which would help to soften variability in exchange rate, having moved not urgent requirement of FX to the future market;
- OTC FX futures has to be in not standardized sums and various fixed contents, which can be sold in any dates, thus guaranteeing the dates of repayment;
- The income of inflows of foreign investments and the international money transfers have to be bought by authorized dealers on daily interbank tariff.
Exchange rate dollar to Naira
We will remind that earlier CBN declared refusal of binding of rate of national currency to US dollar in favor to more flexible currency mode. According to them, this measure is directed to increase volumes of local production and increase in export, and also to prevent recession in national economy. At the same time, the head of CBN refused to specify how transition to new currency policy will be carried out, having reported that details of this decision will be published within several days. Now official rate is recorded at the level of 197 naira for 1 US dollar. At the same time in the black market, one dollar costs 350 naira.
Analysts claim that it was more difficult for state to support an official rate of national currency because of falling in prices of oil, and the decision of Central Bank is an attempt of Nigerian authorities to prevent recession. As we wrote earlier, the government of Zimbabwe made a decision on release of bank notes, which will be equal to American dollar in the ratio 1:1.
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