Update on CBN Circular on Establishment of Investors’ & Exporters’ FX Window
Update on CBN Circular on establishment of investors’ & exporters’ FX Window.
Recently the Central Bank of Nigeria (“CBN”) by Circular FMD/DIR/CIR/GEN/08/007 dated 21 April 2017 (which took effect on 24 April 2017) (the “Circular”) announced the establishment of a forex window for investors, exporters and end-users, which is called the “Investors and Exporters FX Window” (the “Window”). The purpose of the Window is to boost liquidity in the forex market and ensure timely execution and settlement of eligible transactions. The Window is accessible for the following classes of transactions:
a) Invisible transactions, which include loan repayments (principal and interest), dividends, capital repatriation, management services fees, consultancy fees, software subscription fees, technology transfer agreements and personal home remittances (excluding international airline ticket sales’ remittances);
b) Bills for collection; and
c) Any other trade-related payment obligations (at the instance of the customer).
Supply of foreign currency to the Window shall be through portfolio investors, exporters, Authorised Dealers and other parties with foreign currency to exchange for Naira; and transactions in the Window are to be conducted through Authorised Dealers. The CBN is however included as a market participant to promote liquidity and professional market conduct. The CBN in the Circular charged the FMDQ OTC Securities Exchange (“FMDQ”) with responsibility for polling buying and selling rates and other relevant information from the major participants in the market to provide participants with the requisite price discovery until the market migrates to the FX Trading systems.
The FMDQ is thus expected to publish indicative rates on its website twice daily. The practical implications of this new regime include –
(a) Foreign investors are no longer required to convert foreign currency imported into Nigeria to Naira at a rate fixed by the CBN: foreign investors are free to negotiate and agree the applicable exchange rate with an Authorised Dealer (typically the bank through which the foreign currency is to be imported into Nigeria) on a willing buyer and willing seller basis. This exchange rate determination regime will also apply to the repatriation of capital and returns thereon by foreign investors, subject nevertheless to appropriate documentation.
(b) Foreign currency for payments to suppliers of technical services and other foreign technology transfer services, the underlying agreements of which have been registered with the National Office for Technology Advancement and Promotion, may also be purchased via the Window under the same exchange rate determination regime.
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