The Central Bank of Nigeria (CBN) on Friday, July 20, 2018, kickstarted its sale of foreign exchange in Chinese Yuan (CNY), in line with the Bilateral Currency Swap Agreement (BCSA) signed with the People’s Bank of China (PBoC) on April 27, 2018.
The exercise shall be through the Special Secondary Market Intervention Sales (SMIS) retail and dedicated to the payment of Renminbi denominated Letters of Credit for raw materials and machinery and agriculture.
A statement by the CBN said although there will be no predetermined spread on the sale of FX Forwards by Authorised Dealers to end-users under the Special SMIS-Retail, authorised Dealers would be allowed to earn 50 kobo on the customers’ bids
The statement quoted CBN’s spokesman, Isaac Okorafor, as saying the apex bank would receive bids from all authorized dealers and that due to the peculiarity of the exercise, the relevant provisions of its Revised Guidelines for the Operation of the Inter-bank Foreign Exchange Market will not be applied.
The guidelines direct all SMIS bids to be submitted to the CBN through the Forex Primary Dealers (FXPDs).
The sales, he added, shall be through a combination of spot and short tenored forwards, adding that the CBN would also not be applying the relevant provisions of the Guidelines which equally provide that “Spot FX sold to any particular end-user shall not exceed 1% of the overall available funds on offer at each SMIS session”.
On funding, Okorafor said authorized dealers were to debit the customers’ accounts for the Naira equivalent of their bids, stressing that the CBN would debit authorized dealers’ current account on the day of intervention to the tune of the naira equivalent of their bid request.
Speaking on the bid period, he said authorised Dealers were requested to submit their customers’ bids from 9.00 am to 12.00 pm on Friday July 20, 2018, adding that bids received after this time would be disqualified.
While also explaining that the bids were on Spot FX basis as the Authorised Dealers’ accounts with the CBN would be debited in full for the Naira equivalent of the USD bid amount, he advised customers that were not willing to accept the settlement terms not to participate in this Special SMIS – Retail.
Similarly, he disclosed that forward bids would be settled through a multiple-price book building process and would cut-off at a marginal rate to be disclosed after the conclusion of the Special SMIS – Retail process. He also urged customers not willing to accept the terms of the forward rate not to participate in this Special Chinese Yuan SMIS Intervention.
Meanwhile, Okorafor emphasized that the CBN reserved the right not to make a sale if it had the impression that the exercise did not provide an effective price for the determination of the CNY/NGN exchange rate.