9 Years After, CBN Removes Restriction To FX On 43 Items

The Central Bank of Nigeria says it has removes restriction to foreign exchange placed on forty-three in 2015. According to a statement signed by Director, Corporate Communications, Isa AbdulMumin, importers of those items are now free to access the FX market to purchase foreign exchange. Former CBN Governor, Godwin Emefiele had in 2015, placed a restriction on 43 items that cannot access forex at the FX market. According to Emefiele, at the time, it was part of effort to encourage local production. “Importers of all the 43 items previously restricted by the 2015 Circular referenced TED/FEM/FPC/GEN/01/010 and its addendums are now allowed to purchase foreign exchange in the Nigerian Foreign Exchange Market,” the Apex Bank said. The regulator added that it will continue to promote orderliness and professional conduct by all participants in the Nigerian Foreign Exchange Market to ensure market forces determine exchange rates on a Willing Buyer – Willing Seller principle. “The CBN reiterates that the prevailing Foreign Exchange (FX) rates should be referenced from platforms such as the CBN website, FMDQ, and other recognised or appointed trading systems to promote price discovery, transparency, and credibility in the FX rates. “As part of its responsibility to ensure price stability, the CBN will boost liquidity in the Nigerian Foreign Exchange Market by interventions from time to time. As market liquidity improves, these CBN interventions will gradually decrease. “The CBN is committed to accelerating efforts to clear the FX backlog with existing participants and will continue dialogue with stakeholders to address the issue. “The CBN has set as one of its goals the attainment of a single FX market. Consultation is ongoing with market participants to achieve this goal. Participants and the general public are to be guided by the above,” it further said.

Naira Weakens Despite CBN’s Intervention

Since the unification of all the official foreign exchange (FX) windows, the Naira has continued to depreciate against the US dollar, down by 39.6 per cent to N765.83/$ as of 11 October 2023 from N462.88/$ at the I&E Window. Based on the half-year financial markets report of the Central Bank of Nigeria, it has maintained its intervention in the foreign exchange market in an attempt to alleviate demand pressures and ensure exchange rate stability. A total of $6,439.33 million was sold at the foreign exchange market made up of spot sales of $1,557.47 million and forward sales of $4,881.86 million. The spot sales comprised $612.41 million sold at the inter-bank Secondary Market Intervention Sales (SMIS) window, $455.31 million sold to Small and Medium Enterprises (SMEs), $441.75 million for Invisibles, and $48.00 million sold at the I&E window while the bank purchased a total of $655.53 million in the FX market. However, the shocks of the policy have been more pronounced at the parallel market leading to a steep depreciation of the Naira to N1020/US$ on 10 October 2023. With little control over the depreciation of the nation’s currency, the then acting governor of the Central Bank of Nigeria (CBN), Mr. Fola Shonubi, announced plans to put in place new policies that would guide the dealings of FX to boost supply in the market. Apparently, the measures put in place have not been effective as demand for FX continues to rise amidst an acute shortage of supply. “We have always argued that while we believe the unification of the various FX rates is a pro-market policy that will be positive for the economy in the long term, the short to medium-term impact will be hard too hard on the average consumer. “A focus on rate convergence without structural reforms to increase the supply of FX will be a case of treating the symptoms while ignoring the underlying cause of the problem which is an acute shortage of supply amidst a growing demand for FX. Meanwhile, while crude oil sales and Foreign Portfolio Investments (FPIs) are two major sources of FX that have declined significantly, Oil production remains depressed, reported at 1.57 mbpd in September (highest so far this year) and are yet to see any significant foreign capital inflows. According to the Nigerian National Petroleum Company Limited (NNPCL), between September 30 and October 6, 128 crude oil theft incidents were recorded across the oil-producing areas of the Niger Delta. In the specific timeframe mentioned, there were numerous illicit activities in the oil sector. These included 17 cases of unauthorized connections, 27 illegal refineries, 11 infractions related to vessel tracking systems (AIS), and 49 instances of wooden boat arrests.

CBN Earns N912bn Income From W&Ms Loans To FG

The Central Bank of Nigeria (CBN) has earned a total of N912.32 billion from interest payments in the first quarter of 2023 on the Ways and Means (W&Ms) advances to the Federal Government, according to the Budget Office report. This substantial figure was reported in the first quarter’s 2023 Budget Implementation Report, released by the Budget Office of the Federation. The interest payment amount marks a substantial increase of 161.47 percent when compared to the N348.92 billion spent during the same quarter in 2022. Nigeria had initially allocated N1.2 trillion to service the CBN Ways and Means Advances in this year’s budget, translating to approximately N300 billion per quarter. However, the government had already expended about 76.03 percent of its budgeted amount for interest payments on these loans during the first quarter. Ways and Means Advances serve as a loan facility extended by the Central Bank to support the government during periods of temporary budget deficits, subject to legal limits. According to Section 38 of the CBN Act, 2007, the central bank can provide temporary advances to the federal government to address temporary budget shortfalls at interest rates set by the bank. The Act stipulates that the total outstanding advances should not exceed five percent of the previous year’s actual revenue of the Federal Government. Furthermore, all advances must be repaid as soon as possible, and in any case, no later than the end of the Federal Government’s financial year in which they were granted. Failure to repay these advances by year-end would limit the central bank’s ability to grant further advances in subsequent years unless outstanding advances are settled.

CBN resumes OMO on system liquidity

The Central Bank of Nigeria (CBN) is set to suck in some liquidity from the system as it last week resumed the Open Market Operation (OMO). The immediate result was system liquidity slumping 51.8 percent week-on-week (W/w) to N33.8 billion. Analysts at Afrinvest attest that the reduction was a result of the auctions conducted by the central bank at the OMO window and Treasury Bills (T-Bills) front. “Nonetheless, OPR and Overnight (OVN) rates closed the week lower at 2.0 percent and 2.8 percent respectively from 5.8 percent and 6.8 percent”, said analysts at Afrinvest. At the bond market, the bearish sentiment in the domestic bonds market extended last week, as average yield across tenors rose 21 basis points (bps) w/w to 13.3 per cent. The most selloffs were seen on short-term bonds as the average yield increased 51bps w/w. Similarly, the average yield on the mid-and long-term bonds advanced 21bps and 13bps w/w, respectively. The domestic equities market sustained weekly gains, with the All Share Index (ASI) going up 0.2 per cent w/w to close at 65,325.37 points. Consequently, market capitalisation increased N92.7 billion to N35.6 trillion, while Year-To-Date (YTD) return grew to 27.5 per cent (previously 27.2 per cent). Activity level faltered as average volume and value traded declined by 32.4 per cent and 15.3 per cent w/w to 348.2 million units and N5.0billion respectively. Brent crude oil saw an uptick of 0.8 per cent w/w, to reach $86.88/bbl. This momentum was despite renewed economic concerns in China and a large inventory buildup in the US. Meanwhile, Nigeria’s foreign reserves plunged 0.2 per cent w/w, reaching $33.9 billion as of August 10th, 2023… On the global scene, last week was marked by the absence of substantial positive catalysts, the MSCI World Index experienced a 0.8 per cent w/w decline. In the US, the S&P 500 and NASDAQ indices fell 0.4 per cent and 2.0 per cent w/w respectively. Analysts at Afrinvest said the drop was influenced by pressure on bank shares, triggered by Moody’s decision to downgrade the credit ratings of 10 small- to mid-sized banks.

24 Central Banks will have digital currencies by 2030 – Survey

A survey by the Bank for International Settlements (BIS) shows that 93 percent of central banks are already researching Central Bank Digital Currencies (CBDCs). According to the survey, there could be up to 15 retail and nine wholesale CBDCs in circulation by 2030.According to a survey, over half of the world’s central banks are conducting experiments or working on a CBDC pilot. Almost a quarter of all central banks are already piloting their retail CBDC projects, and the number of wholesale CBDCs in the works is much lower.Geoeconomically, nations within emerging markets and developing economies are leading CBDC adoption. Their share in piloting the retail (29 per cent) and wholesale (16%) CBDCs almost doubled that of advanced economies, which stands at 18 per cent and 10 per cent, respectively.Both developing and advanced economies mostly share the motivation behind their CBDC projects — financial stability and cross-border payments efficiency. However, developing countries are more often driven by financial inclusion reasons. The share of central banks likely to issue retail CBDC within the next three years grew from 15 per cent to 18 per cent in 2022. At the same time, 68 per cent of central banks still state their unreadiness to issue retail CBDC “any time soon.”So far, there are still only four CBDCs in circulation: in the Bahamas, the Eastern Caribbean, Jamaica and Nigeria. Yet, based on the central bankers’ answers, the survey predicts 15 retail and nine wholesale CBDCs will be live by the end of the decade.At the end of June, the Reserve Bank of India reported ongoing negotiations with at least 18 central banks worldwide regarding the possibility of cross-border payments via its CBDC, the “digital rupee.” In July, the Federal Reserve Bank of New York’s Innovation Center completed its proof-of-concept of a regulated liability network for a CBDC.