In a renewed effort to stabilize the fluctuating exchange rate, the Central Bank of Nigeria (CBN) on Wednesday directed the Deposit Money Banks (DMBs) to offload their dollar excess reserves by February 1, 2024.

This was contained in a circular released, saying it is part of the CBN’s broader strategy to address the volatility in the foreign exchange market.

The development followed the concerns raised by some commercial banks that maintain long-term foreign exchange positions to profit from the fluctuations in exchange rates.

The new guidelines, as outlined in the circular titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” aim to mitigate the risks associated with these practices.

This directive follows closely on the heels of another circular that cautioned banks and FX dealers against reporting inaccurate exchange rates.

Furthermore, the recent adjustment in the methodology for calculating the nation’s official exchange rate by the FMDQ Exchange has seen the Nigerian Autonomous Foreign Exchange Market rate surge from approximately N900/dollar to N1,480/dollar, a move applauded by economists for its potential to unify the official and parallel market rates.

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However, economists have also urged the CBN to address the over $5bn FX backlog and ensure sufficient funding for FX demands at the official market to prevent divergence between the official and parallel market rates.

In the latest circular signed by Dr. Hassan Mahmud, Director of Trade and Exchange, CBN, and Mrs. Rita Sike, representative of the Director of Banking Supervision, CBN, banks are accused of holding excess foreign exchange positions.

Banks are now required to align their Net Open Position (NOP) with the new regulations, which stipulate that the NOP must not exceed 20 per cent short or 0 per cent long of the bank’s shareholders’ funds, calculated using the Gross Aggregate Method.

Banks currently exceeding these limits are instructed to adjust their positions accordingly by the set deadline.

Additionally, the CBN mandates banks to maintain sufficient stocks of high-quality liquid foreign assets and adopt robust treasury and risk management systems to oversee all foreign exchange exposures.

Non-compliance with these directives will result in sanctions and possible suspension from the foreign exchange market, the CBN warned.

This initiative is part of the central bank’s ongoing efforts to ensure stability in the foreign exchange market and promote economic stability.

A top bank executive, who spoke on condition of anonymity with Punch, said the new circular would force banks to sell off excess dollar liquidity exceeding $5bn.

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Sell Excess Dollars In 24Hrs, CBN Tells Banks