CBN Direct Dealers to Review Downward to 0% FOREX Trading Position

By Yakubu LAAH InvestAdvocate

Lagos (INVESTADVOCATE)-The Central Bank of Nigerian (CBN) on Wednesday directed authorised dealers to temporarily review downward to zero percent from one percent of their shareholder’s funds as foreign exchange trading position at the close of each business day.

This is contained in a CBN’s circular with reference number TED/FEM/FPC/GEN/01/026 dated November 17 and signed by Olakanmi Gbadamosi, its director, trade & exchange department.

“ In order to preserve the stability of the market, the foreign exchange trading position of individual authorised dealer, which is currently at 1% of its shareholder’s funds (SHF) unimpaired by losses, has been temporarily reviewed downward to zero percent with immediate effect,’’ the circular said.

According to the CBN, following this circular, all authorised dealers are henceforth required to maintain zero percent of the SHF as net open position on a daily basis.

The CBN further affirmed that any infraction as regards the new requirement will attract sanctions, which may include suspension from the FOREX market.

According to Cordros analysis on this circular, before now,  banks given the opportunity to hold 1 percent of the dollar value of their SHFs beyond each day, are reluctant (in anticipation that the value of the dollar will appreciate each passing day) to sell immediately to those with “genuine need” for the foreign currency.

Cordros says the artificial scarcity created by this act of banks had been driving the naira depreciation at the inter-bank window. ‘’A zero percent position in essence kills speculative tendencies as banks are now compelled to either sell to the users of the naira (at prevailing price) or risk returning the funds to the CBN,’’ it said.

The Cordros analysis added that following the closure of transactions at the Retail Dutch Auction System, (rDAS) until the new year, the CBN will be selling dollars directly to the inter-bank market and does not want the authorised dealers to speculate (by hoarding) on these currencies. ‘’The policy could be reversed after December,’’ Cordros affirmed.

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