New CBN Directive Aims to Stabilize Naira Amid Concerns Over Currency’s Value
The Central Bank of Nigeria (CBN) has issued a new directive to deposit money banks (DMBs) aimed at stabilizing the Nigerian naira against foreign currencies. In a memo addressed to all banks, the CBN instructed that banks disclose their positions on foreign exchange (FX) holdings and draw them down to not more than 20% short of their shareholders’ funds.
The move comes as the naira continues to experience depreciation against major currencies, particularly the US dollar, leading to concerns about its value. The CBN’s latest directive is part of a series of policy measures introduced in the past year to address the free fall of the naira.
According to the memo, the CBN is concerned about the growth in foreign currency exposures of banks through their net open position (NOP), which has created risks for the financial system. To manage these risks and avoid potential losses that could impact the stability of the banking sector, the CBN has set a limit on the overall foreign currency assets and liabilities of banks.
Banks that currently exceed the prescribed limit have been given a deadline to comply with the new prudential requirement. The CBN has also mandated banks to compute their daily and monthly NOP and foreign currency trading position (FCTP) using specified templates.
Non-compliance with the new directive could result in immediate sanctions and/or suspension from participating in the foreign exchange market, according to the CBN. The policy is part of efforts by the CBN Governor, Yemi Cardoso, to shore up the value of the naira and stabilize the economy, following a directive from President Bola Tinubu.
The new directive issued by the CBN has sparked controversy, with some questioning its effectiveness in addressing the challenges facing the naira. While some experts believe that the policy is a step in the right direction, others argue that it does not go far enough to address the root causes of the naira’s depreciation.
Critics of the policy have raised concerns about its impact on foreign exchange operations and its potential consequences for customers’ funds. They also question the timeframe provided for banks to adjust their foreign exchange holdings, suggesting that it may not be sufficient to achieve the desired results.
Meanwhile, supporters of the directive argue that it is necessary to prevent further depreciation of the naira and restore confidence in the currency. They believe that the policy will help to stabilize the foreign exchange market and create a more conducive environment for economic growth.
In response to the recent depreciation of the naira, the Senate Committee on Banking, Insurance, and other Financial Institutions has summoned CBN Governor Yemi Cardoso to appear before it next week. The committee seeks to question the governor on the state of the economy and the sharp decline of the naira, which was one of the worst-performing currencies last year.
The committee’s chairman, Senator Adetokunbo Abiru, expressed concern about the impact of the naira’s depreciation on the economy and called for urgent measures to address the situation. The inquiry is expected to shed light on the CBN’s efforts to stabilize the naira and its plans for the future.
The CBN’s directive is part of a broader strategy to address the challenges facing the Nigerian economy, including the need to diversify away from reliance on natural resources for foreign exchange supply. While the effectiveness of the policy remains to be seen, it reflects the CBN’s commitment to maintaining stability in the foreign exchange market and ensuring the long-term viability of the naira.
The Guardian
