The Buhari led Government has through the Central Bank of Nigeria (CBN), announced its “Automatic adjustment mechanism of the exchange rate.” This is a fancy name for devaluation of the naira.
President Buhari has been under pressure from international monetary agencies to devalue the naira. Buhari resisted the moves.
According to the plan, Buhari and CBN will use the regime to ensure his campaign promise of making $1 = to N1 is achieved.
Here is their plan.
According to the CBN Governor, Godwin Emefiele, “The CBN has always maintained that it would continue to monitor situations on ground and ensure that the Bank’s policies reflect these facts and developments rather than the sentiments of any groups or sectors.
“It is in light of this principle that we now believe that the time is right to restore the automatic adjustment mechanism of the exchange rate with the re-introduction of a flexible inter-bank exchange rate market.
“The workings of this market will be consistent with the Bank’s objectives of enhancing efficiency and facilitating a liquid and transparent Foreign Exchange Market.
Following this, the CBN plans to do the following:
- Exchange Rates would be purely determined by market forces.
- CBN will play a part in the Market through intermittent interventions to buy or sell FX as market forces demand.
- CBN will introduce FX Primary Dealers (FXPD) who would be registered by the CBN to deal directly with the Bank for large trade sizes on a two-way quotes basis.
- Primary Dealers shall operate with other dealers in the Inter-bank market.
- To enhance liquidity in the market, the CBN may also offer long-tenured FX Forwards of 6 to 12 months or any tenor to Authorized Dealers In addition.
- Sale of FX Forwards by Authorized Dealers to end-users must be trade-backed, with no predetermined spreads
- Proceeds of Foreign Investment Inflows and International Money Transfers shall be purchased by Authorized Dealers at the Daily Inter-Bank Rate.
- Non-oil exporters are now allowed unfettered access to their FX proceeds, which shall be sold in the Inter-bank market.
- Selected FX Primary Dealers would be notified by Friday 17th June 2016. All other non-Primary Dealers would remain valid and eligible to participate in the market.
- Inter-bank trading under the new guidelines will begin on Monday 20th June 2016.
The CBN also warned that “Any attempt to breach any aspect of this new framework will be heavily sanctioned by the CBN.”