Nigeria Launches “Purely” Market-Driven Forex Trading

Forex

Nigeria’s central bank will open a “purely” market-driven window for interbank foreign exchange trading, shifting away from a fixed exchange rate, in an effort to increase the supply of hard currency, the governor of the bank said on Wednesday.

The central bank will use the new trading scheme to inject foreign exchange liquidity, if needed, which Nigeria hopes will ease severe dollar shortages caused by a slump in oil revenue, Governor Godwin Emefiele said.

It was not clear at what rate the central bank would supply dollars to the interbank market. The central bank’s official rate is 197 naira to the U.S. dollar, but the currency trades at around a 50 percent discount on the parallel market.

Letting the market set the naira’s value is likely to drive down its value. That will make Nigerian products cheaper and competing imports more expensive, which should stimulate the domestic economy.

“The market shall operate as a single market structure through the interbank and autonomous window. The exchange rate will be purely market-driven,” Emefiele told reporters.

“To improve the dynamics of the market, we will introduce foreign exchange primary dealers who would be registered by the CBN to deal directly with the bank for large trade sizes on a two-way quote basis,” he said.

Investors approved of the idea: Nigeria’s stock market gained 3 percent following the announcement.