The Central Bank of Nigeria (CBN) has revealed that it sold a total of $543.5 million (N844,920,000,000.00) to authorised dealer banks through the Nigerian Foreign Exchange Market (NFEM) between September 6 and 30, 2024.
This move was part of the apex bank’s efforts to reduce volatility in the foreign exchange market amid rising demand for foreign exchange (FX) driven by commodity imports and seasonal pressures.
According to a statement released by the CBN, the FX sales were conducted over 11 trading days through a two-way quote system, with a T+2 value date applied to all transactions. The intervention is in line with the CBN’s broader FX management strategy aimed at ensuring stability in the market.
“T+2 date” refers to a settlement process in financial markets where transactions are completed two business days after the trade date. The “T” stands for the transaction date (or trade date), and the “+2” means the transaction is settled two days later.
In the context of the CBN’s FX spot sales, it means that after the foreign exchange trade is executed on a particular day, the actual exchange of currency (dollars for naira, for example) between the CBN and the authorised dealers occurs two business days later. This delay allows time for administrative processes, verification, and transfer of funds to be completed.
The CBN’s FX spot sales came as the market experienced increased volatility due to a surge in demand for FX, particularly from importers of key commodities, coupled with seasonal FX requirements. The bank’s intervention is seen as a measure to stabilise the exchange rate and prevent further disruptions in the supply and demand dynamics of the Nigerian foreign exchange market.
The $543.5 million sold during this period underscores the CBN’s commitment to meeting the demand for FX in the economy. By intervening through spot sales, the CBN seeks to maintain a balanced and fair market environment for all participants.
A senior official at the CBN noted that the intervention was carefully timed to address the spikes in FX demand, especially as businesses ramp up import activities toward the end of the year. “The bank will continue to monitor market activities and take necessary actions to ensure that FX supply remains adequate to meet legitimate demands,” the official stated.
The CBN also used the opportunity to provide guidance to the public on FX pricing, advising stakeholders to use the rates at which the bank sold FX to authorized dealer banks as a reference point when conducting their transactions. The rates at which FX was sold during the period are intended to offer transparency and assist in determining fair market rates.
Market participants have observed that the FX spot sales have helped to temper the wide fluctuations that had previously characterized the market. By maintaining a steady supply of dollars, the CBN has been able to mitigate the upward pressure on exchange rates, allowing businesses to access FX at more predictable prices.
The bank reiterated its commitment to facilitating the continuous flow of FX into the Nigerian Foreign Exchange Market as part of its broader management strategy. The objective is to ensure that the foreign exchange market operates efficiently and that market participants can access FX in a manner that supports economic growth.
The $543.5 million sold to authorized dealers during the period was distributed across 11 trading days, with varying amounts made available based on prevailing market conditions and demand. The two-way quote system used by the CBN allowed for flexibility in pricing, ensuring that the authorized dealers were able to access FX at rates that reflected the market dynamics at the time of each sale.
The sales were carried out in compliance with international best practices, with authorized dealers required to submit competitive bids for the FX, and transactions were settled two business days after the trade date (T+2), ensuring a smooth and efficient transaction process.
The FX spot sales are part of the CBN’s broader efforts to manage Nigeria’s foreign exchange resources effectively. The bank has consistently intervened in the market to address imbalances between demand and supply, ensuring that businesses and individuals can access FX for their legitimate needs.
The CBN has also adopted a multi-faceted approach to FX management, which includes interventions in the interbank market, ensuring the smooth operation of the Investors and Exporters (I&E) window, and the introduction of policies aimed at boosting FX supply from non-oil sources, such as remittances and export proceeds.
(The Nation)
