The Central Bank of Nigeria (CBN) has adopted a more market-driven approach to its foreign exchange (FX) policy as it removed the spread on Foreign Exchange Transactions.
This was contained in a statement from the CBN Financial Markets Department, signed by Duke Omolara Omotunde on Thursday, February 8, 2024.
The statement said the directive is in line with the objectives of the CBN’s current FX market reforms, which is to promote a “market-based price discovery system.”
“A key objective of the ongoing foreign exchange market reforms by the Central Bank of Nigeria is to promote a market-based price discovery system. Consequently, the Bank hereby discontinues any cap on the spread of interbank foreign exchange transactions and restrictions on the sale of interbank proceeds.
“Authorized dealers are to continue to conduct their foreign exchange transactions on a “Willing Buyer and Willing Seller” basis. In addition, they are to strictly adhere to high ethical standards in their dealings in the foreign exchange markets. This includes but not limited to adopting appropriate price disclosures and transparency for transactions.”
“Please note that all executed transactions are to be recorded immediately on the relevant treasury systems and reported to market authorities as stipulated,” the statement said.
Previously, the CBN imposed limits on the difference between buying and selling prices for FX, known as the “spread.”
However, these caps have now been lifted, enabling banks to establish their own prices based on supply and demand. This allows the market to determine the “fair” price for foreign currencies, particularly the US dollar.
Banks now have more flexibility to sell FX to anyone they choose. This change could result in quicker and more convenient access to foreign currency for both businesses and individuals.