The commercial banks has been given directives from the central bank of Nigeria to accept the foreign exchange rates quoted at the importer and exporter window which will be used for payment across borders.
The payment system which will be utilized is know as the pan African payments and settlement system (PAPSS).
According to AFRIMAX this system will serve as a continent-wide platform for the processing, clearing and settling of intra-African trade and commerce payments, leveraging a multilateral net settlement system. Its full implementation is expected to save the continent more than US$5 billion in payment transaction costs each year.
The I&E window is the official foreign exchange window of the federal republic of nigeria. Currently, naira trades between N410 and N411 at the market — which the CBN had adopted as the country’s official rate.
The I&E FX window is the market trading segment for investors, exporters and end-users that allows for FX trades to be made at exchange rates determined based on prevailing market circumstances.
The apex bank gave the directive in a circular introducing the guidelines on operations of PAPSS in Nigeria, recently signed by Ozoemena Nnaji, CBN’s director of trade and exchange department.
By implication, intra-African businesses will need CBN’s approval for banks to convert rates at the prevailing I&E FX rate for cross border payments and transactions.
“All authorised dealers are required to ensure that prevailing exchange rate at Investors and Exporters Forex Window as advised by Financial Markets Department, FMD, should be used in cross-rates conversion between Naira, United States Dollars and third currencies within Africa, for outbound payments and vice-versa for inflows,” the circular reads.
“For settlement of PAPSS transactions by CBN, authorised dealers shall obtain the approval of CBN for dollar cover before initiating payments on PAPSS.
“The request for approval should be forwarded to the Director, Financial Markets Department, CBN.
“That eligible payment of imports and receipt of export proceeds by the CBN shall be restricted to trade-backed transactions only and that the documentation requirements stipulated in Memorandum 9 and 10 of the Foreign Exchange Manual (2018) and other extant circulars shall apply. Import payments shall also be restricted to goods of African origin.”
According to the circular, all the required documentation should be provided before a transaction is initiated on PAPSS by authorised dealers and their customers.
It further noted that export proceeds repatriated to CBN under PAPSS shall be subject to certification by respective processing banks as being repatriated by the exporter.
The circular added that the provisions of all existing guidelines, circulars, and directives on the operations of foreign exchange market shall apply.
The CBN, however, stated that only eligible transactions as may be determined by the central bank from time to time shall be eligible for payment on PAPSS.