Two new FX windows by the CBN

Hi all, I hope you are all doing well. Just a day more to go before the weekend. Whoop Whoop. So excited again because my sister’s introduction would be happening during the weekend. Awwn, these little kids of nowadays grow up so fast. Yeah, that aside, let’s move on to the business of today, we would be taking a look at the two special purpose FX windows created by the CBN in recent time.

The first we would be looking at is the SME foreign exchange (FX) window for small and medium enterprises (SMEs). The SME FX window enables SME firms purchase up to US$20,000 for importing eligible finished and semi – finished items. Under the agreement for the window, firms with employee strength of between 10 to 199 and asset base of N5 million to less than N500 million will be availed the opportunity to import eligible items within the approved threshold.

With this development, SME’s can focus all their attention on their core products and services as raw materials for production can be sourced at a fixed exchange rate of N360 rather than the more expensive parallel market rate averaging N380 as at the time of its creation. This gives them room for SME’s to dedicate their time and energy on maintaining production levels or possibly increasing it, instead of taking time out to source for dollars which is time consuming and may result into future revenue loss.

The second FX window is the FX window for Investors and Exporters. This FX window was created sometime in April 2017 (2 weeks after the creation of the FX window for SME’s) to boost liquidity in the forex market and ensure timely execution and settlement of eligible transactions. The Investors and Exporters FX window on the other hand caters to invisible transactions such as loan repayment, loan interest payments, dividends or income remittances, capital repatriation, management service fees and consultancy fees; software subscription fees, technology transfer agreements, personal home remittances, bills for collections and any other trade related obligation at the instance of the customer; and other eligible transactions like miscellaneous payments detailed under memorandum 15 of the CBN foreign exchange manual.

The major difference between the Investors and Exporters FX window and the SME FX window is that whilst the exchange rate for the SME FX window is fixed at a specific rate and solely supported by the CBN, there is no specific rate for the Investors and Exporters FX window as the rates are determined by the market forces of demand and supply with the CBN only acting as a market participant. So in essence, rates are to be derived by price discovery. The FMDQ is responsible for polling, buying and selling rates and obtaining relevant information from major participants in the market for the purpose of providing all participants with the requisite price discovery and also the CBN with the indicative market depth.

It should be noted that for now, orders are made via telephone as the FX trading system is yet to be deployed by the FMDQ OTC