Recall that the exercise marked the
consummation of the Bilateral Currency Swap Agreement (BCSA) the CBN signed with the People’s Bank of China (PBoC) on April 27.
A statement issued by the CBN disclosed that the sales shall be through a combination of spot and short tenored forwards. It added that the exercise, which will be Special Secondary Market Intervention Sales (SMIS) retail, would be dedicated to the payment of Renminbi denominated Letters of Credit for raw materials, machinery and agriculture.
CBN’s spokesman, Isaac Okorafor,
explained that the CBN would receive bids from all authorized dealers. He added 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, which directs all SMIS bids to be submitted to the CBN through the Forex Primary Dealers (FXPDs).
According to Okorafor, the CBN would also 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”.
Speaking on the bid period, he said
authorized 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 would be disqualified.
On funding, he disclosed that authorized dealers were to debit the customers’ accounts for the Naira equivalent of their bids, stressing that the CBN would debit
authorized dealers’ current account on the day of intervention to the tune of the naira equivalent of their bid request.
Okorafor further explained 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.
While also explaining 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, he advised customers that were not willing to accept
the settlement terms not to participate in this Special SMIS – Retail.
Similarly, he disclosed 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 this
Special Chinese Yuan SMIS Intervention.
Okorafor emphasized 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.