Idris Ahmed
10 July 2009
Abuja — The re-introduction of the Wholesale Dutch Auction System (WDAS) in place of the Retail Dutch Auction System (RDAS) in the foreign exchange market becomes effective from next Monday, the Central Bank of Nigeria (CBN) has said.
CBN Governor Sanusi Lamido Sanusi announced the replacement Tuesday in Abuja at his first outing in the Monetary Policy Committee (MPC) meeting. The re-introduction of WDAS is to stimulate activities in the inter-bank and stabilize the Foreign Exchange Market.
Former CBN Governor, Professor Chukwuma Soludo replaced RDAS with WDAS in February to check chronic depreciation of Naira.
RDAS is a controlled system in foreign exchange market operation where authorized dealers bid at a targeted sectors, while WDAS is liberalized.
A circular posted on the CBN website yesterday put a minimum amount an Authorized Dealer can bid in the foreign exchange market through WDAS at $100,000.00, saying the currencies of transaction shall be the Naira and the United States dollar.
"The provisions of this circular supersede the provisions of Sections 1 (a) and 4 of the circular on "Re: Guidelines for the operation of the foreign exchange Market: Retail Dutch Auction System (RDAS): Circular Ref: TED/FEM/FPC/GEN/01/088 of May 22, 2009", CBN said.
It said that contravention of any of the Foreign Exchange Market regulations shall attract appropriate sanctions as spelt out in the provisions of relevant laws and CBN guidelines.
The circular said that Authorised Dealers shall submit their bids on Monday and Wednesday for any particular auction session between 9.00am and 10.30am on the day of the auction.
The circular said that CBN reserves the right to reject bids that are deemed to be unrealistic and that dealers can submit no more than three tranches per auction.
"The bids should be submitted via Reuters Dealing 3000 Xtra System to the Abuja dealing line. However, hard copies of bid request should be submitted to the address mentioned in (2) above", the circular read.
It further said: "The minimum bid amount by an Authorized Dealer shall be $100,000.00 and the currencies of transaction shall be the Naira and the United States dollar. The CBN shall announce the result of each Auction by 1.00 pm on the day of auction
It said that Authorised Dealers shall ensure that they have adequate Naira cover in their current accounts with the CBN and that CBN shall promptly debit the current accounts of banks with the Naira equivalent of the foreign exchange purchased, at their bid rates.
The circular said that funds purchased from CBN at the Auction shall be used for eligible transactions only, subject to stipulated documentation requirements and such funds shall be transferable in the inter-bank foreign exchange market.
The circular read: "The CBN may also purchase foreign exchange from Authorised Dealers and other participants such as oil companies, etc at their offer rates. The CBN shall deliver the Naira cover for US Dollar bought from the banks to the banks' Current Accounts at them CBN.
"The banks shall deliver US Dollars sold to CBN to the CBN SPECIAL FEM ACCOUNT with JP Morgan Chase, New York. The rate that clears the market shall be the prevailing exchange rate for the period."
The new guidelines increa-sed the foreign exchange Net Open Position of banks from 2.5% to 5.0% of shareholders' funds. It said that the difference between the buying and selling rates shall not exceed 50 Kobo.
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