The Central Bank of Nigeria (CBN) on Friday commenced its Chinese Yuan (CNY), intervention in the nation’s foreign exchange market’s Special Secondary Market Intervention Sales (SMIS) retail segment, signaling the consummation of the Bilateral Currency Swap Agreement (BCSA) signed with the People’s Bank of China (PBoC) on April 27 this year.
A statement issued by the apex bank indicated that the sales shall be through a combination of spot and short-tenored forwards.
The CBN stated further that the exercise, which shall be Special Secondary Market Intervention Sales (SMIS) retail, would be dedicated to the payment of Renminbi denominated Letters of Credit for raw materials and machinery and agriculture.
The Bank’s spokesman, Isaac Okorafor, explained that the CBN would receive bids from all authorized dealers, adding however that due to the peculiarity of the exercise, the bank would not be applying the relevant provisions of its Revised Guidelines for the Operation of the Inter-bank Foreign Exchange Market directing all SMIS bids to be submitted to the CBN through the Forex Primary Dealers (FXPDs).
According to the spokesperson, the apex bank will not be applying the relevant provisions of the Guidelines which equally provide that “Spot FX sold to any particular end-user shall not exceed 1% of the overall available funds on offer at each SMIS session”.
Okorafor stated further on the bid period for the maiden intervetion that authorised dealers were requested to submit their customers’ bids from 9.00 am to 12.00 pm on Friday, adding that bids received after this time will be disqualified.
On funding modalities for the newest forex initiative, he disclosed that authorized dealers were to debit the customers’ accounts for the Naira equivalent of their bids, stressing that the apex bank would debit authorized dealers’ current account on the day of intervention to the tune of the naira equivalent of their bid request.
This is even as he clarified that there would be no predetermined spread on the sale of FX Forwards by Authorised Dealers to end-users under the Special SMIS-Retail, adding that authorised Dealers would be allowed to earn 50 kobo on the customers’ bids.
Okorafor, who also explained that the bids were on Spot FX basis as the authorised dealers’ accounts with the CBN would be debited in full for the Naira equivalent of the USD bid amount, advised customers that were not willing to accept the settlement terms not to participate in this Special SMIS – Retail.
Similarly, he also hinted that forward bids would be settled through a multiple-price book building process and would cut-off at a marginal rate to be disclosed after the conclusion of the Special SMIS – Retail process.
He also urged customers not willing to accept the terms of the forward rate not to participate in Special Chinese Yuan SMIS Intervention.
He explained that that the CBN reserved the right not to make a sale if it had the impression that the exercise did not provide an effective price for the determination of the CNY/NGN exchange rate.
