CBN: Shonubi undo Emefiele’s Naira4Dollar, RT200 rebate schemes … adopt a free-floating exchange for Naira

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Folashodun Adebisi Shonubi, Acting Governor, Central Bank of Nigeria (CBN)

The Central Bank of Nigeria (CBN) has announced the cessation of the RT200 rebate scheme and the Naira4Dollar remittance scheme, with effect from June 30.

The apex bank announced the development in a circular issued on Wednesday and signed by Angela Sere-Ejembi, director, financial markets department.

“The Central Bank of Nigeria (CBN) wishes to inform all authorized dealers and the general public of the following immediate changes to operations in the Nigerian Foreign Exchange (FX) Market: Cessation of RT200 Rebate Scheme and the Naira4Dollar Remittance Scheme, with effect from 30 June 2023,” the circular reads in part.

Launched last year, the Race to $200 billion in FX Repatriation (RT200FX) initiative was established to stimulate non-oil exports with a $200 billion FX income target in the next three to five years.
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Under the scheme, a rebate of N65 for every $1 of repatriated non-oil export proceeds is paid to exporters of semi-finished and finished goods, while exporters of unprocessed items enjoy a rebate of N25/$.
On the other hand, the Naira 4 Dollar Scheme was introduced in March 2021 as an incentive for senders and recipients of international money transfers. The policy entailed the payment of N5 for every $1 received as a remittance inflow.

Both policies were introduced by the CBN under the leadership of Godwin Emefiele, the suspended governor

President Bola Tinubu suspended Emefiele on June 9 and directed that he transfers his responsibilities to the deputy governor, operations directorate.

Folashodun Adebisi Shonubi, the deputy governor, is expected to act as the CBN governor pending the conclusion of an investigation ordered by the president into Emefiele’s activities.

The Department of State Services (DSS) later announced that Emefiele is currently in its custody for “some investigative reasons.

In the same vain, he has announced the unification of all segments of the forex exchange (FX) market.

According to the circular on Wednesday, the apex bank said all FX windows are now collapsed into the investors & exporters (I&E) window.

The CBN said the move is part of a series of immediate changes to operations in the Nigerian FX market.

“Abolishment of segmentation. All segments are now collapsed into the Investors and Exporters (I&E) window. Applications for medicals, school fees, BTA/PTA, and SMEs would continue to be processed through deposit money banks,” the circular signed by Angela Sere-Ejembi, director, CBN financial markets department, reads.

“Re-introduction of the “Willing Buyer, Willing Seller” model at the I&E Window. Operations in this window shall be guided by the extant circular on the establishment of the window, dated 21 April 2017 and referenced FM/DIR/CIR/GEN/08/007. All eligible transactions are permitted to access foreign exchange at this window.

“The operational rate for all government-related transactions shall be the weighted average rate of the preceding day’s executed transactions at the I&E window, calculated to two (2) decimal places.

“Proscription of trading limits on oversold FX positions with permission to hedge short positions with OTC futures. Limits on overbought positions shall be zero.

“Re-introduction of order-based two-way quotes, with bid-ask spread of N1. All transactions shall be cleared by a Central Counter Party (CCP).

“Reintroduction of Order Book to ensure transparency of orders and seamless execution of trades.

“The operational hours of trades shall be from 9am to 4pm, Nigeria time.”

The CBN said further guidance on the operational changes would be communicated to authorised dealers and the general public in due course.

The changes to operations in Nigeria’s FX market implies that the country has eased its control of the naira, allowing the local currency to freely float.

A free-floating exchange rate occurs when a government allows the exchange rate to be determined purely by market forces and there is no attempt to ask the central bank to influence the external value of the exchange rate.

According to The Ameh News (TAN)’s research Financial Term and freely floating exchange rate system is the monetary system in which exchange rates are allowed to move due to market forces without intervention by country governments.

A floating exchange rate refers to a currency where the price is determined by supply and demand factors relative to other currencies. A floating exchange rate is different to a fixed – or pegged – exchange rate, which is entirely determined by the government of the currency in question

Based on the present CBN governor policy the Naira currency is floating which mean the exchange rate of the Naira is free-floating by the power of demand and supply.

Furthermore, free floating of Nigeria currency means the values change will be according to how the currency trades on foreign exchange or forex (FX) markets. This type of exchange rate is based on supply and demand. Nevertheless, CBN has the power to intervene in the foreign exchange markets, as central banks do in other countries.

The most widely floating currencies: The United States dollar, the euro, the Swiss franc, the Indian rupee, the pound sterling, the Japanese yen, and the Australian dollar.

Further research showed benefits of a Floating Exchange Rate as follows:
• Stability in the balance of payments (BOP) …
• Foreign exchange is unrestricted. …
• Market efficiency enhances. …
• Large foreign exchange reserves not required. …
• Import inflation protected. …
• Exposed to the volatility of the exchange rate. …
• Restricted economic growth or recovery

 

The most outstanding question begging for answer is, can Nigeria Currency Naira’s price able to be determined by supply and demand factors relative to other currencies in the market going forward?

 


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