CBN Gives Naira A Lifeline, Shuts Dutch Auction Foreign Exchange Windows

SAN FRANCISCO, February 18, (THEWILL) – The Central Bank of Nigeria (CBN) Wednesday shut with immediate effect two foreign exchange windows; Retail Dutch Auction System (rDAS) and Wholesale Dutch Auction System (wDAS) windows, in order to halt the continued sharp decline of the naira.

The CBN in a statement said all demands for foreign exchange will be handled at the Interbank Foreign Exchange Market.

The naira, which exchanged at N215 – $1 in the parallel market on Wednesday and hovered between N208-N209 at the auctions, has been under pressure since the price of crude declined in the markets coupled with the uncertainties surrounding the general election, which was abruptly postponed by the electoral commission.

“The managed float exchange rate regime, which the Bank had adopted following the liberalization of the foreign exchange market, has for the most part been successful in ensuring exchange rate stability in line with its mandate.

“In recent times, however, with the sharp decline in global oil prices and the resultant fall in the country's foreign exchange earnings, the Bank has observed a widening margin between the rates in the interbank and the rDAS window, thus engendering undesirable practices including round-tripping, speculative demand, rent-seeking, spurious demand, and inefficient use of scarce foreign exchange resources by economic agents.

“This has continued to put pressure on the nation's foreign exchange reserves with no visible economic benefits to the productive sector of the economy and the general public.

“In view of the foregoing, it has become imperative that appropriate actions be taken to avert the emergence of a multiple exchange rate regime and preserve the country's foreign exchange reserves.

“Consequently, we wish to inform all authorized dealers and the general public that, with effect from the date of this press release, the rDAS/wDAS foreign exchange window at the CBN is hereby closed. Henceforth, all demand for foreign exchange should be channeled to the INTERBANK FOREIGN EXCHANGE MARKET.

“For the avoidance of doubt, all authorized dealers and the general public should note that the CBN will continue to intervene in the interbank foreign exchange market to meet genuine/legitimate demands,” the CBN statement said.