The Central Bank of Nigeria (CBN) is urged by the World Bank to avoid forex auctions and instead adopt a structured, transparent approach to foreign exchange interventions to stabilize the naira.
This recommendation was highlighted in the Nigeria Development Update, which suggests CBN focus on a flexible, market-reflective exchange rate policy to foster economic stability.
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EKO HOT BLOG reports that in a significant shift from its previous methods, the CBN conducted a retail Dutch auction on August 26, 2024, auctioning $876.26 million directly to end users, a departure from the Bureau de Change sales it once favored.
This move, overseen by Governor Yemi Cardoso, aimed to boost foreign exchange liquidity, ease demand pressures, and support market price discovery. The auction granted dollars to 3,347 firms through 26 banks at a cut-off rate of N1,495 per dollar.
The World Bank report advises deepening the FX market by allowing participants to trade more flexibly over time and recommends that international oil companies sell FX in the official market exclusively.
Additionally, the bank emphasizes formal remittances, intermediated access for bureaux de change, and gradually building foreign reserves to underpin exchange rate stability.
Further, the report calls for maintaining a unified, market-driven exchange rate to strengthen fiscal revenues, draw investment, and expand reserves, ultimately supporting a robust economic environment for trade and growth.
By securing a predictable exchange rate, the CBN could enhance government revenues from oil and other export-related activities, as well as customs and VAT on imports, while promoting investment and inclusive growth.
Whether the CBN will incorporate these recommendations into its policy framework remains uncertain.
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