THE Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, has criticized the actions of desperate buyers in the foreign exchange market, stating that their willingness to transact at the prevailing exchange rate does not reflect the true market value of the naira.
Cardoso highlighted that these transactions, often driven by urgent demand, create distortions in the forex market, undermining efforts to achieve a stable and transparent exchange rate regime.
According to him, the actual value of the naira should be determined by market fundamentals rather than panic-driven purchases.
Cardoso, who was the guest speaker at the 59th Annual Bankers’ Dinner on Friday, announced that trading on the Enhanced Foreign Exchange Market System (EFEMS) begins today, December 2, 2024 with a minimum transaction threshold set at $100,000.
The CBN recently pegged the minimum foreign exchange trade on the EFEMS platform at $100,000, with an incremental clip sizes of $50,000, directing banks to deploy and go live in the use of the Bloomberg BMatch as the EFEMS for trading activities in the forex market.
In the guidelines for EFEMS, the CBN added that participants must set credit and settlement limits for other counterparties in the system and that transactions exceeding these limits will not be executed.
The CBN said: “The minimum tradable amount is $100,000.00, with incremental clip sizes of $50,000.00.
“Participants must set credit and settlement limits for other counterparties in the system. Transactions exceeding these limits will not be executed.”
Also, in a circular to all banks in the interbank forex market signed by the Director, Financial Markets Department, CBN, Dr. Omolara Duke, the CBN said: “The CBN hereby states that effective from December 2, 2024, Authorised Dealers will go live in the use of the Bloomberg BMatch as the Electronic Foreign Exchange Matching System (EFEMS) for its FX trading activities in the FX market.
Over the past year, the CBN, according to Cardoso, has undertaken critical reforms to unify Nigeria’s exchange rate, eliminating distortions and restoring transparency.
“This unification has enabled us to clear the outstanding foreign exchange obligations, giving businesses—ranging from manufacturers to airlines—the confidence to plan and invest in the future. To further enhance the functionality of the foreign exchange market, we are introducing an electronic FX matching system, which has proven effective in other markets,” he said.
“It is vital to address the disinformation circulating about a supposed demand-supply gap in the FX market, which is fueling unnecessary panic. The current USD exchange rate reflects the price that the most desperate buyers are willing to pay, and this does not represent the true market value of the naira.
“The introduction of the electronic matching system will correct these distortions by enhancing the price discovery process. Additionally, it will significantly boost the Central Bank’s oversight and intervention capabilities, ensuring a more stable and transparent foreign exchange market.
“While the Central Bank will continue to lay the foundation for price stability and foster a conducive policy environment, the role of our banks in this journey is crucial. An FX market defined solely by when and how the Central Bank buys or sells dollars is inadequate for the needs of a dynamic economy like Nigeria’s. Now is the time for banks to step up to their intermediation and market-making responsibilities, providing customers with the right solutions to run their businesses and manage risks effectively.”
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