Nigeria’s central bank is set to automate foreign currency trades from December, ditching a nearly decade-old over-the-counter trading system in a bid to enhance transparency and remove market distortions.
The Central Bank of Nigeria (CBN), seeking to boost liquidity in its currency markets, announced that the new system would “facilitate a market-driven exchange rate accessible to the public”. It also released new guidelines for players in the foreign exchange market.
“This development is expected to reduce speculative activities, eliminate market distortions and give the CBN improved oversight,” the bank said in a circular dated Oct. 2.
The CBN said a two-week test run would be carried out in November, without specifying the exact dates.
The transition comes against the backdrop of currency controls put in place by Nigeria in 2017 during the height of its economic crisis, when the CBN introduced multiple exchange rate regimes, including an over-the-counter trading system that masked weaknesses in the naira currency.
Lenders could only trade buy or sell orders from a customer under the old system, which restricted dollar supply and harmed the economy. With the new system, the CBN said it would publish real-time prices and buy/sell orders data.
LSEG data showed the naira at 1,634 to the dollar at 1240 GMT on Friday. The unit has hit record lows on both the official and parallel markets since the currency market was liberalised last year.