In a significant development for Nigeria’s financial landscape, the exchange rate between the Nigerian Naira (NGN) and the US Dollar (USD) has taken a new turn. As of August 24, 2023, the official forex trading data from the FMDQ Security Exchange, a reputable forex trading portal, reveals intriguing insights into this pivotal shift.
According to the released data, the Naira initiated the trading day at ₦781.49 per dollar on August 23, 2023. As the day unfolded, a compelling trend emerged, and by the close of the trading day on the same date, the Naira stood at ₦773.42 per USD. This marked a notable fluctuation within a single trading day, indicative of the dynamic nature of the currency markets.
This latest development is part of a series of strategic reforms implemented by the Central Bank of Nigeria (CBN) on June 14, 2023. These reforms were geared towards unifying various segments of the foreign exchange (FX) market, and they culminated in the collapsing of all FX windows into the Investors and Exporters (I&E) window. This unification move aims to streamline operations and enhance transparency within the Nigerian FX market.
One of the notable changes introduced is the reintroduction of the “Willing Buyer, Willing Seller” model within the I&E window. Under this model, transactions will be facilitated at rates determined by market forces, emphasizing a more market-driven approach. Moreover, the operational rate for government-related transactions will be based on the weighted average rate of the previous day’s transactions at the I&E window.
The CBN has also abolished trading limits on oversold FX positions, granting permission for hedging short positions with over-the-counter (OTC) futures. This move aims to provide greater flexibility for market participants while maintaining effective risk management mechanisms.
Transparency and order execution have received a boost through the reintroduction of order-based two-way quotes. The bid-ask spread of N1 ensures that trades maintain a balanced and fair approach. Additionally, all transactions are set to be cleared by a Central Counter Party (CCP), contributing to a secure and accountable trading environment.
To further enhance transparency, the CBN has reintroduced the Order Book, which ensures that all orders and trades are conducted seamlessly and with clear visibility. This feature will play a crucial role in bolstering confidence among market participants.
The operational hours for trading within this framework are set from 9 a.m. to 4 p.m. Nigeria time, allowing for consistent and regulated trading activities.
With these reforms, Nigeria has taken a bold step towards allowing the Naira to float freely, indicating a reduced level of central bank control over its external value. This approach aligns with the principles of a free-floating exchange rate, where market forces primarily dictate the currency’s value.
These transformative changes signify a progressive move by Nigeria’s financial authorities, aiming to create a more resilient and market-responsive foreign exchange landscape. As the implementation of these reforms continues, further guidance will be communicated to authorized dealers and the public at large.
Source: Gatekeepers News
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