CBN bars banks from holding funds in dollars to halt naira fall

The Central Bank of Nigeria has barred commercial banks from holding any part of their funds in United State dollars as it steps up efforts to reduce pressure on the naira.

The CBN, in a circulated dated December 17, 2014, ordered the banks to stop keeping one per cent of their shareholders’ funds in dollars as foreign exchange trading position at the close of each business day.

The move, according to the CBN, is meant to reduce the volatility being experienced in the naira-dollar exchange rate.

The circular, signed by the Director, Trade Exchange, CBN, Mr. Olakanmi Gbadamosi, read, “The CBN has observed the recent development in the foreign exchange market and its consequences on the stability of the exchange rate. In order to preserve the stability of the market, the foreign exchange trading position of individual authorised dealer, which is currently at one per cent of its shareholders’ fund unimpaired by losses, has been temporarily reviewed downward to zero per cent with immediate effect.

“Consequently, authorised dealers are therefore required to maintain zero per cent of their shareholders’ fund as foreign exchange trading position at the close of each business day. Any infraction of the requirement of this circular, in any way whatsoever, will attract appropriate sanctions, which may include suspension from the foreign exchange market.”

The CBN believes commercial banks are contributing to the continued fall of the naira by speculating against the naira through their dollar stocks.

Credit: Oyetunji Abioye/Punch