Central bank governor, Lamido Sanusi Photo: NEXT

Central Bank sets new guideline for forex trade

By Oluwaseyi Bangudu

August 14, 2009 10:21AM

The Central Bank of Nigeria (CBN) has expressed concern over the widening gap between the Whole Dutch Auction System (WDAS) and the interbank exchange rates.

According to a circular released by the CBN yesterday, the reason for this gap has been traced to authorised dealers who buy funds at the WDAS window and sell at the interbank market.

The circular is dated August 3, 2009 and titled "Non-transferability of funds procured from the Whole Dutch Auction System (WDAS) among authorised dealers." It stated: "As a result of this activity, the end-users end up paying a high price for foreign exchange due to the arbitrage activities of the banks."

New guidelines

The Central Bank has therefore issued new guidelines to address this issue. According the circular, "Funds procured from the Wholesale Dutch Auction System (WDAS) shall not be transferable at the interbank window. Furthermore, WDAS funds would not be transferred or sold to authorised buyers (Bureaux de change, hotels, etc)."

The circular also stated that authorised dealers should remember that the gap between their buying and selling rates must not exceed fifty kobo (50 kobo).

The Central Bank advised authorised buyers to keeps proper records as it may be demanded for at any time.

"Dealers are required to keep records of WDAS and interbank transactions and these should be made available to examiners on demand," said the circular.

The circular also said the failure of authorised dealers to comply with the new guidelines, starting from the date of the issued circular, will lead to withdrawal of license.

The Naira, which was gradually recording stability at the official market sometime in June 2009, has started depreciating consistently against the U.S. dollar at the regulator's window since checks on interbank trading were removed and the WDAS re-introduced in July 2009, due to low dollar supply against mounting demand.

While the Naira traded at ₦149.75 to the dollar at the finance regulator's window on Monday August 3, 2009, it traded at ₦156.20 at the interbank market. As at yesterday, a dollar exchanged for ₦150.25 to a dollar at the official market, while it exchanged for ₦158.50 at the parallel market.

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Reader Comments (8)

Posted by Rotimi Atolagbe on Aug 05 2009

This one is a good step in the right direction.Thanks to CBN

Posted by Rotimi Atolagbe on Aug 05 2009

This one is a good step in the right direction.Thanks to the CBN

Posted by Nuraddeen nasir on Aug 05 2009

It might be a positive step if the intended result was realized.becouse it's too early to comment on the issue now.but we will for time to justified the positivity or otherwise of the move.

Posted by sanjib on Aug 05 2009

Sanusi L. Sanusi ?

Posted by Chidi on Aug 05 2009

Great intension, great move. But NOTE what happens to nigerian laws: the ones who are paid to enforce it (and who are in best position to be the whistle blowers) only end up fraternizing with the defaulters. Rub my back, I rub your back. And if one is too daft to let his back be rubed he is either (a.) intimidated and/or (b.) tactically sooner than later made to pay in a personal way. Our integrities are (smartly) for sale.

Posted by Peter on Aug 06 2009

This shows that CBN is thinking, please let's not stop thinking. We will get there soonest than we expected. I totally subscribe to the emmergency visits by CBN inspectors

Posted by BAB on Aug 06 2009

This sounds good as we can eliminate arbitrage gains by Banks who bear no risk in buying forex from government and trading it at ridiculously high margin to mostly clients with illegitimate transactions. The objective is to create many primary dealers at the CBN window. Volumes of interbank trade will be halted as export proceeds will take centre stage! The problems had never been new laws or policy initiatives but that of execution. In an era of greed, stronger policing by regulators becomes imperative. This must be the new direction of government....

Posted by Alabi Akeem on Aug 06 2009

It sounds like a great news, at least it's obvious that CBN has realized that the end-users pay more price on forex. I think all this we be over if CBN can sanitize the major area, where people hide under the umbrella of the so call 'Authorized buyer'.