......Culled from Reuters Africa......
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Nigeria aims for full convertibility in 2009
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By Estelle Shirbon
ABUJA, Aug 14 (Reuters) - The Nigerian central bank will remove all restrictions on current account transfers and make its naira
The central bank will gradually phase out its dollar auctions, its main tool for managing the exchange rate, in favour of interbank dealing, Soludo told a gathering of journalists, government officials and diplomats.
It will distribute some fiscal oil revenues to the federal and state governments in dollars from next month to deepen the foreign exchange market, he added.
"As the market deepens, the central bank will gradually withdraw from the weekly Dutch auction system and only intervene in the market as may be required to achieve defined policy objectives," Soludo said.
Nigeria will also redenominate the naira from Aug. 1 next year, removing two zeros, so that 100 old naira will become 1 new naira, he said.
Before the announcement, the naira appreciated by 0.58 percent to 126.26 to the dollar as banks sold dollars on fears that the government would announce a major revaluation of the naira, traders said.
But the rate eased on the interbank market to 126.45 per dollar after the announcement as dealers noted the policy would not take effect until Jan. 2009.
"This is very positive. I agree fully with all the initiatives and more importantly the sequencing," said Tony Elumelu, head of UBA Plc, Nigeria's largest bank by balance sheet.
The naira has been appreciating steadily against the dollar this year thanks to high oil revenues, strong international reserves and a rising stock market. Analysts said they expected these changes to lead to a further appreciation.
RISKS
Soludo said the central bank was conscious of the risk of "undue appreciation" of the naira and would do everthing to avoid that. But he declined to comment on whether the bank would manage the rate using a band or specific target rate under the new policy.
Nigeria, the second largest economy in sub-Saharan Africa, partially deregulated its foreign exchange market in February 2006 to allow retail banks and the public more access to hard currency, but restrictions remain on many types of dollar transactions.
Easing restrictions on current account transfers means that companies will no longer need to provide documentation to receive dollars for a transaction related to trade.
However, Soludo did not say anything about easing restrictions on transferring capital into and out of the country, contrary to analysts' expectations.
Restrictions now in place include a requirement that imported capital should stay in the country for one year. This gives Nigeria some protection from speculative currency flows and capital flight.
The changes are in line with Nigeria's commitment to sign up to the International Monetary Fund's Article VIII, which says that no member shall impose restrictions on transfers for current international transactions.
An IMF team is due to visit Nigeria later this month.
Bismarck Rewane of Financial Derivatives Co. in Lagos said the plan to distribute fiscal oil revenues to the 36 state governments, which receive 24 percent of Nigeria's total income, would be a test of their capacity.
"They will need treasury management skills at a level of government where there is no capacity," he said. (Additional reporting by Tom Ashby and Oludare Mayowa in Lagos)
© Reuters 2007.
