The Central Bank of Nigeria (CBN) has stated that net foreign exchange flows increased to $25.4 billion between January and June, a 55% year-over-year rise, demonstrating the results of its policy initiatives.
This surge has been driven by a spike in capital importation, which reached $6 billion in June 2024, and record inflows from diaspora remittances through formal channels, according to a statement released by the top bank on Wednesday.
The statement mentioned: “The CBN’s policy objectives are yielding tangible results and bolstering market confidence. Net foreign exchange flows rose to $25.4 billion between January and June, marking a 55% year-over-year increase. This growth has been fuelled by an increase in capital imports, which reached $6 billion in June 2024, as well as record inflows from diaspora remittances via formal channels.”
Over $305 million has been sold to authorized dealers in the last three weeks
The CBN added that through a two-way quote mechanism that has been used over the past few months to improve liquidity in the interbank market, over $305 million in foreign exchange has been sold to authorized dealers in the last three weeks.
The statement further mentioned that on Wednesday, August 7, 2024, an auction was held, and the CBN made an offer of $876 million to match bids made by customers.
The Retail Dutch Auction System (RDAS), which is intended to enable FX sales to end users directly, fostering a more transparent market, lowering information asymmetry, and supporting price discovery, was used to do this.
The statement said: “In the latest testament to the Central Bank of Nigeria’s (CBN) ongoing commitment to support the proper functioning of the foreign exchange market by enhancing liquidity when necessary, the apex bank offered $876m to fulfil bids submitted by customers at an auction concluded on Wednesday, August 7, 2024.”
“In line with its pledge to provide transparent access to foreign exchange for all legitimate customers, the CBN’s leadership has introduced an additional mechanism through the Retail Dutch Auction System (RDAS) to directly facilitate FX sales to end users.”
“This approach aims to foster a more transparent market, reducing information asymmetry and supporting price discovery. It complements the two-way quote system deployed over the past few months to enhance liquidity in the interbank market, through which over $305 million of foreign exchange has been sold to authorized dealers in the last three weeks.”
CBN accounts for less than 5% of FX turnover
Additionally, the CBN stated that, as of July 2024, its share of the $43 billion foreign exchange (FX) turnover reported on the official market was less than 5%.
The CBN said in a statement that the FX market is improving and becoming deeper and that the continuous convergence of exchange rates across all market segments is being facilitated by increasingly stable and diverse sources of liquidity.
The statement reads: “The foreign exchange market is also showing signs of improvement and increased depth, with more robust and diversified sources of liquidity contributing to the sustained convergence of exchange rates across all segments of the market. By the end of July 2024, the official market had generated $43 billion in client transactions, with CBN-supplied liquidity accounting for less than 5% of total market activity.”
The CBN emphasized that it will keep building the market’s ability to serve the interests of all eligible players and that it is dedicated to promoting an open, market-driven environment for foreign exchange.
It is anticipated that this continuous endeavor will enhance market confidence and sustain the general stability of the Nigerian economy.
What to note
In its most recent Retail Dutch Auction, the Central Bank of Nigeria (CBN) auctioned $876.26 million to 26 eligible banks for N1,495/$1.
This is stated in a statement that the director of the financial markets department, Dr. Omolara Omotunde Duke, signed.
It was revealed in the statement that the auction was held to encourage price discovery and lessen demand pressure in the foreign exchange (FX) market.
The CBN stated that 32 dealer banks submitted bids totaling $1.18 billion. Nevertheless, two banks failed to include bids in their submitted templates, while four banks missed the deadline, disqualifying their bids.
In the most recent auction, the apex bank contributed just approximately 75% of the entire bid sum.
As the head of the CBN, Yemi Cardoso has presided over the largest FX auction to date.
