A New Foreign Exchange Policy

On Monday 21 February 2017, the Central Bank of Nigeria (“CBN”) announced that it shall take new policy actions in the foreign exchange market (the “Market”). The new policy is aimed at boosting foreign exchange (“FX”) liquidity within the Market with the CBN aiming to :

1. abolish foreign exchange allocation/utilisation rules on commercial banks;

2. introduce intervention programmes to support the inter-bank FX market (IFXM); and

3. reduce the forward sales tenor from the date of transaction, from the 180 days cycle to 60 days.

As part of immediate measures, the CBN will be providing direct funding to commercial banks to meet with the following FX needs: personal and business travel allowances, medical and school fees needs. It is expected that the ensuing retail transactions should be sold at rates not exceeding 20% above the IFXM rates.

Any Respite?

We believe the new policy has the potential of improving liquidity in the Market. For example, the abolition of the FX utilisation rules is a step in the right direction. The CBN had in 2016 introduced the utilisation rules which dedicated at least 60% of available FX to end users in the Nigerian manufacturing sector. The Market was to witness series of abuse as FX made available to the manufacturing sector was often times diverted to unauthorized purposes. With the CBN’s new posture, the availability of FX for hitherto legitimate transactions will mean that all relevant sectors of the economy can now freely apply for FX to meet with their legitimate needs, thereby removing the incentive in the round-tripping witnessed in recent times.

The reduction of the forward sales tenor from the 180 days’ cycle to 60 days is also commendable as it reduces the lead time for access to FX. This should improve fluidity as FX transactions in the typical 180 days’ period is effectively doubled.

With regards to the intervention programme to support the IFXM, the CBN’s recent move in providing additional funding speaks volume of the actions the CBN may be taking in the short order. We currently are unsure of how the CBN intends to sustain the plan but then it stands to reason that the CBN is optimistic of an upturn in the economy, seeing the increment in the volume of crude oil sales (owing to reduced restiveness in the Niger-Delta region) and in the global price of crude oil.

As the CBN continues to find a lasting solution to the FX crunch, we are optimistic that the implementation of the above-listed policies will improve FX liquidity in the Nigerian economy.

For further information on the foregoing, please contact us by email: with the subject:“Finance Alert – The New CBN Foreign Exchange Policy: Any respite for foreign exchange availability?”

This alert is intended only as a general discussion and should not be regarded as legal advice.

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