The Central Bank of Nigeria (CBN) has conducted its first Retail Dutch Auction System (rDUS), selling $815.36 million to 26 banks at an exchange rate of N1495 per dollar.
This new auction system aims to provide end users with access to foreign exchange in a transparent and efficient manner.
In a statement released on Friday, Omolara Duke, the Director of the Financial Market Department at the CBN, detailed the results of the auction.
The CBN launched the rDUS on Tuesday, and it received a total of $1.191 trillion in bids. However, only $815.36 million of these bids were approved, while $375.7 million in bids were disqualified due to late submissions.
The auction, which was designed to enhance transparency and fairness in the allocation of foreign exchange, saw successful bids ranging from N1495 to N1650 per dollar across the participating banks.
Six banks were disqualified from the auction process.
Four of these banks submitted their bids after the designated six-hour submission period, which was from 9:00 am to 3:00 pm.
The remaining two banks did not use the required bid submission template.
In response to the results, the CBN’s Committee of Governors approved a cut-off bid rate of N1495 per dollar, which was the rate at which the $815.36 million was sold.
This step is part of the CBN’s efforts to manage the foreign exchange market more effectively and ensure that the naira remains stable.
The auction’s outcome has had a positive effect on the naira, which gained N42.88 against the dollar by the end of the week.
This rise in the naira’s value reflects the market’s reaction to the new auction system and its potential to improve liquidity in the foreign exchange market.
The introduction of the Retail Dutch Auction System is seen as a significant move by the CBN to address the challenges faced in the forex market.
By allowing a broader range of banks to participate and setting a clear cut-off bid rate, the CBN aims to increase transparency and efficiency in the allocation of foreign exchange.
The rDUS is part of a broader strategy by the CBN to reform the forex market and improve the management of Nigeria’s foreign currency reserves.
The system is expected to help stabilize the naira by providing a more predictable and transparent mechanism for foreign exchange transactions.
For the participating banks, the auction represents an opportunity to secure foreign exchange at a rate determined by market forces.
This system replaces previous methods that were often criticized for being opaque and susceptible to manipulation.
The success of this first rDUS is being closely watched by market analysts and financial experts.
Many view it as a positive development that could lead to greater stability in Nigeria’s forex market.
However, the effectiveness of the system will depend on its continued implementation and the ability of the CBN to address any challenges that arise.
