in the last two years also, the cbn has consistently intervened in the forex market through the increased sale of foreign exchange as an instrument of liquidity management ( the so - called special auctions ). in december 2006, the cbn introduced the monetary policy rate ( mpr ) with the corridor, and this has eliminated the high volatility in the money market interest rates. the money market is deepening, and the bond market is also evolving. the above conditions indicate that the private financial markets are getting deeper and sophisticated enough to warrant further steps on the part of the central bank to gradually withdraw as a dominant player in the forex market. the inter - bank forex market is now the dominant segment of the market, and needs to be deepened. consequently, the monetary policy committee ( mpc ) of the cbn has approved the sharing of part of the federation account allocation to the federal government and the state governments in us dollars. the local governments are excluded in this phase. for the central bank, this could also provide an additional instrument for effective liquidity management as we migrate to inflation - targeting framework. the proportion of the federation account to be distributed in dollars will be determined from time to time, but largely dependent on the assessment of the forex market as well as the liquidity management requirements of the cbn. both the states and federal government will be required to open “ special domiciliary accounts ” with commercial banks of their choice. the special account can only be accessed by monetizing the balances into naira. in other words, the governments cannot withdraw dollar cash but may also utilize part of their domiciliary accounts for settlement of external obligations ( e. g. opening of letters of credit ). from september 2007, the exchange rate that will be applied in the monetization of federation account as well as the “ special domiciliary accounts ” will be the inter - bank rate on that day. as the market deepens, the cbn will gradually withdraw from the wdas, and only intervene in the market ( buy or sell forex ) as may be required to achieve defined policy objectives. this new policy thrust is expected to deepen the forex market, promote financial market development, and improve the degree of integration among the domestic markets and with international markets. this policy will complement the ongoing programme of allowing nigerian banks to manage part of our external reserves in collaboration with foreign asset managers. the net effect of these will be to create and deepen

will adopt inflation target as the nominal anchor for monetary policy with effect from january 1, 2009. low and stable inflation will be our monetary policy ’ s primary long - term goal. focusing on inflation targeting does not mean that the cbn will not be interested in other broader objectives of macroeconomic policy – output growth, employment, exchange rate, and balance of payments. rather, an inflation - targeting framework will enable cbn to pursue these objectives in a more disciplined and consistent manner rather than the ad - hoc processes of the past. locking - in inflationary expectations is one effective way of ensuring that the currency re - denomination will be sustainable. the outcome of this new framework will greatly improve the credibility of the cbn as the monetary authority, as well as deepen the financial markets and promote rapid development of a private sector - led economy. we will use the next 16 months to fully prepare for the introduction of this framework especially in the light of the deep technical issues involved. the cbn would collaborate with the national bureau of statistics in significantly improving the availability of high frequency and reliable data especially those of the gdp and more robust measures of the price indices. c : sharing part of the federation account allocation in us dollars to deepen the forex market and for liquidity management : to commence from september given the structure and development of the financial system, the underdeveloped nature of the forex markets, as well as the restrictions on foreign exchange transactions, the cbn has traditionally fully monetized the foreign currency receipts in the federation accounts, to be shared by the three tiers of government. initially, the cbn also maintained the accounts for all the tiers of government – as part of the liquidity management framework. subsequently, as the banking system developed, the cbn allowed the share of the states and lgs to be deposited with the commercial banks. recently, following the reforms in the banking sector and the further liberalization of the forex market, both the financial system and the forex market have deepened and become increasingly sophisticated. since 2006, the cbn adopted the wholesale dutch auction system ( wdas ) in the forex market and significantly liberalized the forex market. furthermore, nigeria has exited the debt trap, built up significant external reserves, and the autonomous inflows into the forex market are such that the cbn has become a marginal player in the forex market. the forex market has become so efficient that nigeria no longer has multiple currency practices ( as defined by the imf ).