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Home Economy Circulars

The CBN Just Threw The Kitchen Sink At Shady Forex Traders With This New Circular

Nairametrics by Nairametrics
December 18, 2014
in Circulars, Currencies, Politics
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The Central Bank Governor yesterday in a surprise move issued a circular instructing banks to keep a net zero position for foreign exchange. Here is an excerpt of the circular.

The Central Bank of Nigeria has observed the recent developments in the Foreign Exchange Market and Its consequences on the stability of the exchange rates.

In order to preserve the stability of the market, the Foreign Exchange Trading Position of Individual Authorized Dealer which is currently at 1% of its Shareholder’s Funds (SHF)unimpaired b losses has been temporarily reviewed downwards to zero percent with immediate effect.

Consequently, Authorized Dealers are therefore required to maintain Zero Percent of their shareholder’s funds as Foreign Exchange Trading Position at the close of each business day.

What does this mean?

The CBN has basically  told banks and BDC’s  in clear terms that they must have a zero balance by selling all forex available for sale by close of business. That way, traders are discouraged from hoarding dollars, which creates artificial demand, and sell whatever forex they have.  For example, you go to a bank to buy forex via BDC and the bank tells you they do not have even though they might have. This new rule expects such infractions to stop. The hope is that it will strengthen the naira against the dollar as the gap between demand and supply will be slimmer.

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Will this work?

Well, the CBN has pretty much used most of the tools at its disposal to curb the manipulation of our currency by a few shady dealers. This is perhaps one of the harshest and is expected to force dealers to sell forex. I guess if this doesn’t work, then they might have no choice but to allow the naira float freely at some point or jack up interest rates again.

The Naira closed at a record low of N187 at the interbank Wednesday as the news of this circular filtered in.

Tags: Black MarketCapital controlsCBN Forex PolicyNaira DevaluationNews Review
Nairametrics

Nairametrics

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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