CBN Reintroduces Retail Dutch Auction System

The Monetary Policy Committee of the Central Bank of Nigeria (CBN) last week suspended the Wholesale Dutch Auction System (WDAS) and reintroduced Retail Dutch Auction System (RDAS) with effect from Monday, January 19, 2009 in a bid to shore up the value of the Naira.
The RDAS is bit by bit selling of the foreign currencies to those other than banks in need of it unlike the Wholesale Dutch Auction System where only the banks participate in the purchases.
Prof. Chukwuma Soludo, CBN governor, who disclosed this at the end of an emergency meeting of the Monetary Policy Committee (MPC), said RDAS would be conducted on Mondays and Wednesdays.
According to him,  the bids for the purchase of foreign exchange under the RDAS must be cash-backed at the time of the bid, stressing that  “authorized dealers shall return to the CBN any unutilized funds within five (5) business days after delivery, at the rate of purchase.”
“Funds purchased from CBN at the auction shall be used for eligible transactions only, subject to stipulated documentation requirements.  Such fund shall not be transferable in the inter-bank foreign exchange market,” he said.
“Interest earned on letters of credit established for which settlement has not been effected, shall be repatriated to the CBN for repurchase at the bid rate at the time the funds were purchased, while purchases by banks on behalf of their customers will be published in the dailies fortnightly.”
In order to reduce the amount of the foreign currencies with the banks, Soludo said that the foreign exchange net open position (NOP) of banks will be reduced from 10% - 5% with effect from Monday, January 19, 2009.
The CBN boss assured that they remain committed to Section 15(4) of the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act of 1995, which guarantees unconditional transferability of funds in respect of loans, and portfolio and foreign direct investments into Nigeria.
Soludo had earlier observed that the preliminary estimate of the GDP growth rate for the end of 2008 was an impressive 6.8% compared with 6.25% in 2007, and the inflationary pressure remained high throughout the year; even as he stated that provisional figures indicate that the end of December headline inflation was 14.6% while estimated core (non-food) inflation rate was at 9.2%.
In response to questions, the Governor advised those who stockpiled foreign exchange in anticipation of further depreciation of the Naira to dispose them as fast as they could because the market would stabilize at a lower rate than at the rate they bought them in no distant time.