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By Chijioke Ohuocha, LAGOS.

Central Bank of Nigeria (CBN) will now allow investors to engage in foreign exchange trading at rates the buyers and sellers set, a move it hopes will increase the amount of dollars available in Africa’s biggest economy.

People or businesses who need dollars to repay loans, pay dividends, repatriate capital or settle trade-related obligations will be eligible for the new trading system, according to central bank circular seen by Reuters on Monday.

Trading will take place by phone, at rates set by willing sellers and willing buyers. The central bank will not provide the funds, but it will step in to buy or sell to keep the market orderly.

Dollars have been in short supply in Nigeria since the price of crude oil, the country’s main source of hard currency, plunged three years ago.

“The Central Bank of Nigeria, in a continuing effort to deepen the foreign exchange market and accommodate all FX obligations, hereby announces a special window for investors, exporters,” the bank said in the circular.

The purpose of this window is to boost liquidity in the FX market and ensure timely execution and settlement for eligible transactions.”

Nigeria has at least five exchange rates: the official rate, the black market, a rate for Muslim pilgrims going to Saudi Arabia, a retail rate set by licensed exchange bureaus and a rate for foreign travel and school fees.

The central bank last year lifted a temporary peg on the currency, but to protect its precariously low foreign reserves it introduced a convoluted exchange rate system that sees different buyers paying various rates for dollars.

The policy has masked pressures on the naira and stunted hard currency inflows as investors struggle to price naira assets, according to analysts.

The bank has been using the forward market to meet demand for dollars, making only tiny volumes available on the spot market and using those sales to influence the naira’s official value.

It said FMDQ OTC Securities Exchange will poll buying and selling rates to help with price discovery.

The naira was quoted at 306 to the dollar on the spot market on Monday and 385 on the black market. (Editing by Larry King) (Reuters).