The Central Bank of Nigeria (CBN), on Thursday, approved the sale of Foreign Exchange (FX) to eligible Bureau De Change (BDCs) operators to meet the demand for invisible transactions.
CBN stated that $20,000 will be sold to each BDC at the rate of N1,450/$, representing the lower band of the trading rate at the Nigerian Autonomous Foreign Exchange Market (NAFEM) in the previous trading day.
The apex bank disclosed its approval for additional liquidity injection in a circular dated July 18, 2024, which was issued by A.A Mahdi on behalf of CBN Director, Trade and Exchange Department, and addressed to all BDC operators and the public.
The approval came as the naira closed at N1,630 to the dollar on Thursday at the parallel market, compared to N1,620 on Wednesday.
Intra-day activities saw the local currency decline to N1,650 in the early hours of Thursday.
However, the news of new liquidity injection into the market helped the naira to appreciate to N1,630/$1.
The local currency also closed at N1,566.82 to the dollar at the NAFEM window on Thursday, gaining N14.83 from N1,581.65/$1 on Wednesday.
Daily transaction volumes surged by 152.54 per cent, reaching $273.14 million, compared to $108.16 million recorded on Wednesday.
Additionally, the highest spot rate observed was N1,650, compared to N1,500 recorded as lowest spot.
The central bank explained that the intervention was particularly necessary given the continued distortions in the retail end of the market, which was feeding into the parallel market and further widening the exchange rate premium.
It added that the move followed on-going reforms in the FX market, with the objective of achieving an appropriate market determined exchange rate for the naira.
The circular further directed BDCs to sell FX to eligible end-users at a margin not exceeding 1.5 per cent above the purchase rate from CBN.
Essentially, a forward premium is a situation in which the forward or expected future price for a currency is greater than the spot price. It is an indication by the market that the current domestic exchange rate is going to increase against the other currency. It is frequently measured as the difference between the current spot rate and the forward rate.
When a forward premium is negative, it is equivalent to a discount.
Meanwhile, the Finance (Amendment) Bill, 2024 proposed heavy financial sanctions on banks, including imprisonment of their officials, who fail to pay the windfall tax to the Federal Inland Revenue Service (FIRS).
President Bola Tinubu had sought the National Assembly’s nod to amend the Finance Act, 2023, to impose and charge windfall tax on banks and to provide for the administration of the tax and matters related thereto.
Under the proposed legislation, any bank that fails to pay the windfall tax to the service and has not executed a deferred payment agreement before December 31, 2024, commits an offence and shall, upon conviction be liable to pay the tax withheld or not remitted in addition to a penalty of 10 per cent of the tax withheld or not remitted per annum.
In addition, interest at the prevailing CBN minimum rediscount rate shall apply.
The request for the bill’s presentation for second reading was presented by Senate Leader, Opeyemi Bamidele, who said the amendments sought in the Finance Act 2023 were to impose a one-time windfall tax on the banks on foreign exchange gains realised in their 2023 financial statements.
Bamidele said the amendment to the Finance Act was also designed to further provide for general tax administration in the country.
Specifically, the proposed amendments to the Finance Act, 2023 are required to impose a one-time windfall tax on foreign gains realised by banks in their 2023 financial statements to fund capital infrastructure development, education and healthcare access as well as public welfare initiatives to give sound and solid footing to the Renewed Hope agenda of the present administration.
James Emejo and Nume Ekeghe
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