As part of recent efforts to calm the market and stabilise the naira exchange rate, the Central Bank of Nigeria (CBN) last month introduced new guidelines for trading on the interbank market. The policy allows the exchange rate of the naira to be determined by the market forces of demand and supply, as against the previous pegged rate system.
Under the new arrangement, the commercial banks act as FX Primary dealers. Part of the objectives of the new framework, which included the introduction of the naira-settled Over-the-Counter (OTC) FX Futures trading, was to discourage people from front-loading or hoarding forex due to uncertainty. The central bank also cleared the backlog of matured letters of credits.
The new forex framework allows the market to operate as a single market structure through the interbank/autonomous window, while the exchange rate is market-driven using the Thomson-Reuters Order Matching System as well as the Conversational Dealing Book. The CBN however participates in the market through periodic interventions to either buy or sell forex as the need arises.