The Central Bank of Nigeria (CBN) has ordered Deposit Money Banks to liquidate any surplus dollar stock by February 1, 2024, as part of new efforts to stabilize the country’s erratic currency rate.
The CBN, which made the announcement in a fresh circular issued on Wednesday, also urged lenders not to hold extra foreign currency for profit.
According to officials, the CBN believes that some commercial banks maintain long-term foreign exchange positions in order to profit from exchange rate volatility.
The new circular includes a series of guidelines designed to reduce the hazards connected with these practices.
The CBN expressed worry in the circular headed “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks” over the growing tendency of banks keeping substantial foreign currency positions.
The latest circular comes just 48 hours after the CBN issued a circular advising banks and FX dealers against reporting misleading exchange rates, among other things.
The new development happened shortly after the FMDQ Exchange adjusted the technique used to calculate the nation’s official exchange rate.
The review increased the Nigerian Autonomous Foreign Exchange Market rate (official exchange rate) from around N900/dollar to N1,480/dollar. The naira closed at 1,450/dollar on the parallel market on Tuesday.
Economists and other stakeholders have welcomed the initiative, which aims to reconcile official and parallel market exchange rates.
They did, however, push the CBN to clear FX backlogs estimated to be worth more than $5 billion as well as fund FX needs in the official market. This, they maintained, would prevent the parallel market rate from diverging from the official rate again.
The CBN accused banks of maintaining excess foreign exchange positions in its latest circular, which was released on Wednesday, presumably as part of efforts to fund FX requests through the official channel.
As a result, the central bank gave lenders until February 1, 2024 (today) to sell their excess dollar positions.
The distributed document, dated January 31, 2024, was signed by Dr. Hassan Mahmud, Director of Trade and Exchange, and Mrs. Rita Sike, Representative of the Director of Banking Supervision, CBN.
