CBN’s New FX Window For Investors and Exporters Explained

Nairametrics| The Central Bank of Nigeria on Friday opened a new special forex window dedicated to investors, exporters and end users. In a circular titled Establishment of Investors and Exporters Window, the CBN claimed this new window was introduced to boost liquidity in the FX market and ensure timely execution and settlement of eligible transactions.

The window will specifically serve eligible transactions that are classified as invincible in nature as well as transactions for Bills of Collection. Here is what you need to know about this new FX window;

Is CBN Fixing a price here

Unlike the window for PTA, BTA, Manufacturers, Airlines this window does not have a fixed peg. The market will determine the price at which buyers and sellers want to transact.

Is it like a float?

Well, you can call it a float for participants in this market. However, because the CBN will be intervening occasionally, it will safe not to call this a float.

How will they determine the price?

According to the CBN’s circular, rates will be determined exclusively by willing buyers and sellers. The CBN did not provide any rates and did not also mention any preferred band. To provide price discovery for the market (obtain prevailing FX rates), the FMDQ OTC will be mandated to poll buying and selling rates and other relevant information from major participants in the market. This basically means that the FMDQOTC will be asking banks and other authorised FX dealers how much they bought or sold dollars daily and then use that to determine the average rates and depth of the market. Think of it as a survey for rates.

Can’t they use technology for this?

CBN explains that due to the slow progress in the utilization of the FMDQ Thompson Reuters FX Trading & Auction System which it announced last year, it the now botched flexible exchange rate system, it will have no choice than to allow trades to take place via documented telephone conversations as well as other forms provided that the trades are officially documented. The CBN by the way is also blamed for not allowing the Thomson Reuters FX platform to function. With their platform, all trades would have gone through there instead of having FMDQ to poll.

Where can I get closing spot rates?

To get the prevailing rates, you will have to visit the website of the FMDQ ITC on www.fmdqotc.com . Opening rates will be published 9.00am daily and closing rates 4.00pm daily.

Who will supply this market?

The CBN explains that suppliers of this market will be portfolio investors, exporters, authorised dealers and other parties with foreign currency to exchange for naira. Basically, anyone who has forex and want to exchange for naira at a market determined rate, rather than a rate fixed by the CBN, can participate in this market.

What will be the CBN’s role?

The CBN will also be expected to intervene in this market from time to time. For example, banks are required to return to the CBN balance of unsold forex meant for retail buyers such as PTA and BTA. With this new circular, banks need not return that money but will instead channel it to this Investor and Exporter window.

The CBN also says it will intervene in this market from time to time, either a seller or buyer. Analysts believe this is to ensure that participants do not manipulate prices through creating artificial scarcity. And since the CBN is perhaps the largest supplier of FX in the market, it can indirectly influence the direction of prices and curtail market mischief. Critics also believe this gives the CBN manipulative powers as well and could erode confidence in the market

Will IOCs participate in this market?

The CBN did not mention IOCs in this circular as a participant. Currently, IOC’s are expected to sell their exports to the CBN instead of in the interbank market. However, considering that fx from IOC’s are classified under invisibles by the CBN, some of their supplies could be sold via this market.

Can I sell FX in my domiciliary accounts to banks at the rate determined here?

Balances in domiciliary accounts are also classified as invisibles. This means that if you receive income abroad and want to convert to Naira, you can sell to your bank at a market rate instead of the CBN fixed rate of N305 which was what was obtainable before this circular.  That is assuming the black-market rate is not higher.

Who can buy or sell from this market?

• Bills for collection – These documents presented by banks on behalf of exporters to enable them receive money abroad. It means exporters can now sell their money via this window
• Loan repayments – Companies that took loans in dollars and want to repay principal obligations in dollars
• Loan interest payments – Companies that took loans in dollars and want to repay interest obligations in dollars
• Dividend/income remittances – Foreign investors who need to remit their dividend received from Nigerian companies in dollars
• Capital repatriation – Investors who want to repatriate their capital out of Nigeria
• Management service fees – Businesses that need to pay service fees to their foreign service providers in dollars
• Consultancy fees – Businesses that employ foreign consultants and need to pay them in forex
• Software subscription fees – Payment of subscription fees in dollars. For example, accounting software, programming licenses, other software licenses.
• Technology transfer agreements – Payment of management fees, technical agreement fees etc.
• Personal home remittances and any such other eligible invisible transactions including miscellaneous payment.

Who is excluded

International Airline and Ticket Sales Remittances

Will banks allow us use cards to pay for services

The CBN did not reveal this in the circular, however we believe the usage of cards to help facilitate payments for these transactions could be reintroduced. Rather than have to fill forms online or via bank premises, fees can simply be paid by inserting your master or visa card details. The bank will debit you in naira at the prevailing exchange rate and pay your beneficiary in dollars.

What next for black market

As we have always explained on Nairametrics, we do not see this affecting the black market more than the recent CBN decision has. The market will still cater for its unique sellers and buyers. It’s relative ease of facilitating transactions also make it an easy destination for most Nigerians. However, we expect the price disparity between the black market and the Investor and Exporter window to narrow. In fact, from what we heard, the CBN instructed participants, off records not to transact above black market rates.

We will update this page as more information become readily available.