Central Bank to reintroduce auctions (rDas) to address forex shortage

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The Central Bank of Nigeria (CBN) has unveiled plans to implement a Retail Dutch Auction System (DAS) to address the mounting unmet foreign exchange (FX) demand from end users. 

According to a circular seen by Nairametrics, this initiative, scheduled for next Wednesday, aims to alleviate the growing pressure in the FX market and stabilize the naira’s exchange rate. 

This move comes as the naira, which closed at N1,617.08/$1 on Friday, faces severe demand pressure. 

CBN directs banks to submit list of FX demands 

According to the circular, the CBN has directed all authorized dealer banks to submit a detailed and legitimate list of outstanding FX demands from their end users. 

The circular read: It stated: “The CBN has noted growing unmet FX demand from end users with banks. This has continued to increase the demand pressure in the FX market with adverse impact of the exchange rate of the naira.
“Authorised dealer banks therefore are to provide to the CBN, a legitimate list of all outstanding FX demand by end users.” 

This comprehensive list must include information such as the customer’s name, address, contact details, Bank Verification Number (BVN), account number, Tax Identification Number (TIN), transaction type, Form A or Form M, and Letter of Credit (LC) Number. 

The directive mandates that all authorized dealers must submit the required information via email to EMDEXDealers@cbn.gov.ng by Tuesday, August 6, 2024, using the provided template. Additionally, accounts of prospective customers must be naira-backed to qualify for participation in the auction, ensuring immediate settlement upon confirmation of bid acceptance by the CBN. 

It added: “The CBN will undertake a Retail Dutch Auction System (DAS) to mitigate the demand for eligible transactions through authorised dealers on Wednesday, 07 August, 2024.
“Consequently, all authorised dealers are to provide the information above via email in the attached template to EMDEXDealers@cbn.gov.ng on or before Tuesday, August 06. 2024.
“The account of prospective customer should be naira backed as a prerequisite to participate in the auction for immediate settlement upon confirmation of bid acceptance by the CBN.” 

The Retail Dutch Auction System is expected to mitigate the demand for eligible transactions through authorized dealers, thereby stabilizing the FX market and supporting the naira.

What you should know 

The Retail Dutch Auction System (DAS) is a direct sale of Forex by the CBN through the banks to the end users of the forex.  

It is based solely on actual demand of forex by the end users of the forex. As such, the authorised dealers will only bid for forex based on the number of actual requests it has received from its end users. For example, if an authorised dealer has received only $1million of confirmed dollar requests from its end users, it can only bid for that $1million from the CBN auction. 

In July, the Nigeria’s central bank sold at least $377.17 million to authorized FX dealers. 

Aside from the FX sales to authorized dealers, the CBN announced the approval of the sales of FX to eligible BDCs to meet the demand for invisible transactions in a decisive step to strengthen the naira on Thursday, July 18, 2024.  The bank announced that the sum of $20,000 is to be sold to each BDC at the rate of N1,450/$1. 

These sales from the CBN came at a time when the naira faced severe demand pressure and the official market struggled with dollar illiquidity. 

In a recent statement, the CBN said it would continue to address the FX supply gap to ensure market stability.


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