CBN Denies Review Of Foreign Exchange Law

forex, CBN, bureau de change, exchange rate, Central bankThe Central Bank of Nigeria (CBN) has denied plans to amend the Foreign Exchange Act.

In a statement, the regulator says it remains committed to safeguarding the international value of the country’s legal tender.

It added that the plans of a 20% fine for any holder and confiscation of funds in domiciliary accounts of individuals is not true.

The news broke over the weekend that the federal government and the CBN were planning to stem volatility in the foreign exchange market with such plans.

The Nigerian Senate on Monday expressed surprise at the recommendation which was made by the Nigerian Law Reform Commission.

The commission recommended a review of the Nigerian Foreign Exchange Act to accommodate punishment for persons holding on to foreign currency.

The commission wants the law to empower the the Central Bank of Nigeria to jail people for up to two years or fine them for 20% of the amount of the foreign currency held in their possession for more than 30 days.

But the Senate’s through its spokesperson, Senator Aliyu Abdullahi, stated that the measure was disruptive and counter-productive and would undermine many of the reform efforts already underway in the legislature and by government ministries intended to boost investors’ confidence.

The proposed changes are said to be intended to help control capital flows and prevent foreign exchange from being taken out of Nigeria.

Senate Rejects Proposal To Punish People For Holding Forex

Senate on forex - Foreign exchange The Nigerian Senate on Monday expressed surprise at a recommendation by the Nigerian Law Reform Commission for a review of the Nigerian Foreign Exchange Act to accommodate punishment for persons holding on to foreign currency.

The commission wants  the law to empower the the Central Bank of Nigeria to jail people for up to two years or fine them for 20 per cent of the amount of the foreign currency held in their possession for more than 30 days.

But the Senate’s through its spokesperson, Senator Aliyu Abdullahi, stated that the measure was disruptive and counter-productive and would undermine many of the reform efforts already underway in the legislature and by government ministries intended to boost investors’ confidence.

The proposed changes are said to be intended to help control capital flows and prevent foreign exchange from being taken out of Nigeria.

However, the Senate spokesman stated that although some of the Commission’s recommendation had many sound attributes and could help Nigeria’s investment climate, a market-oriented exchange rate policy was the best recipe for guiding the operations of the foreign exchange market.

According to him, such policy will ensure the supremacy of market mechanisms in efficiently allocating the scarce forex resources.

“The Upper Chamber believes the CBN should have the authority to regulate the forex market and determine the exchange rate policy as already enshrined in its enabling Act,” Senator Abdullahi added.

Nigerian Lawmakers Seek Sack Of CBN Governor Emefiele

House, CSOs, BillsSome lawmakers in the House of Representatives say the Governor of the Central Bank of Nigeria, Godwin Emefiele, should be sacked over his management of the country’s foreign exchange.

This is one position put forward as lawmakers considered the lingering scarcity of foreign exchange.

Addressing the House, a lawmaker said that the scarcity had continued to weaken the Naira against the dollar which now exchanges about 400  Naira to a dollar.

“The continuous weakening of the Naira against the dollar and other foreign currencies has affect the cost of goods and services production and has consequently made life more difficult for most Nigerians,” he said.

After deliberations on the issue, the House, however, resolved to have an ad-hoc committee investigate the Central Bank of Nigeria’s forex policies and recommend measures that would stabilise the Nigerian forex market.

The apex bank had on June 20 introduced interbank trading of foreign exchange to make the exchange market more flexible.

Despite the introduction of the policy, there is relative scarcity of forex, prompting the lawmakers to request that the Governor of the bank should be sacked.

The scarcity is propelled by demand for dollar needed by most importers, as the nation largely depends on imported goods.

It is a trend that the Nigerian government said some of its economic policies would address, reducing the preference of foreign products while patronage for made in Nigeria goods is promoted.

Highlights Of The Policy 

The CBN had released the highlights of the flexible foreign exchange market policy weeks after the Monetary Policy Committee announced its introduction.

After its meeting of May 24, the CBN said the policy would allow the bank retain a small portion of foreign exchange for critical transactions.

Key notes released stated that the market would operate as a single market structure via the interbank market and authorised dealers and that it would be purely an exchange rate market managed via Thompson Reuters platform.

Part of the key notes is that the CBN would participate via periodic intervention and would introduce primary dealers that deal with the CBN on a two way quote basis.

The primary dealers are also expected to deal with other players in the interbank market.

Other aspects of the key notes are that there shall be no pre-determined spreads on forex transactions and all forex purchases shall be transferable while 41 items shall remain inadmissible in the forex market for forex transactions.

The CBN will also offer long term forex futures and sales of forex forwards for end users must be trade-backed.

The non-deliverable OTC forex settled trades will help moderate volatility. The OTC settled forex feature shall be on non-standardised amounts, the apex bank said.

Another aspect of the key notes states that proceeds of forex shall be purchased by authorised dealers at the daily interbank rates.

The new police which the CBN said was a market-driven trading system, is expected to end the central bank’s 16 month fixed exchange rate policy.

After the highlights were released, Nigeria’s capital market made remarkable gains, with most stocks appreciating in price.

No Need To Panic

One of the leading global rating agencies, Fitch Ratings had welcomed the decision of the apex bank, saying that the shift to a more flexible foreign-exchange regime could aid Nigeria to adjust to lower oil prices and support growth.

It however, warned that the implementation of the new forex policy may present challenges if not properly managed.

Fitch explained that establishing the new framework’s credibility would be key to its effectiveness in attracting portfolio flows and Foreign Direct Investments (FDIs) to make up for lower oil export receipts.

Meanwhile, the CBN Governor, Godwin Emefiele, has reiterated that there was no need for businesses and investors to panic over the new forex policy, saying it will help address the imbalance in the economy.