In a decisive move towards a more liberalized foreign exchange regime, the Central Bank of Nigeria (CBN) has issued a series of circulars addressing key issues in the country’s forex market. These measures aim to tackle forex liquidity challenges, curb excessive speculation, and enhance transparency.
The first circular, titled “Removal of Allowable Limit of Exchange Rate Quoted by the International Money Transfer Operators,” signifies a notable shift. Previously, International Money Transfer Operators (IMTOs) were bound by a cap of -2.5 per cent to +2.5 per cent around the previous day’s closing rate. However, the recent circular, dated September 13, 2023, liberates IMTOs to quote exchange rates based on prevailing market rates at the Nigerian Foreign Exchange Market.
This adjustment responds to concerns over foreign currency speculation and hoarding, particularly within Nigerian banks. The CBN’s commitment to liberalise the forex market aims to foster flexibility and efficiency. It is seen as a strategic move to address the exchange rate depreciation that closed at N1,455/$1 on January 31, 2023.
Simultaneously, another circular titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks” introduces prudential guidelines. The CBN expresses concern over the growing foreign currency exposures of banks, highlighting the risks associated with holding excess long foreign currency positions. The prudential requirements seek to manage these risks, ensuring responsible practices and averting potential systemic challenges.
In a related development, the CBN has issued a warning against providing inaccurate information in forex transactions. The circular signed by Aliyu Ashiru, the acting director of the financial markets department, underscores the importance of transparent and ethical conduct in the financial market. Investigations revealed instances of under-reporting of transaction rates and the illicit practice of “second cheques” in foreign exchange and fixed-income deals.
As part of its ongoing efforts to stabilise the forex market, the CBN has fulfilled its pledge to clear the backlog of foreign exchange owed to foreign airlines. The payment of $64.44 million to airlines, as confirmed by Mrs. Hakama Sidi Ali, the Acting Director of Corporate Communications at the CBN, brings the total verified amount paid to the aviation sector to $136.73 million. This payment is crucial in addressing the challenges faced by foreign airlines in repatriating their ticket sales and aims to alleviate volatility in the forex market.
The CBN’s forward contract obligations to banks reportedly stood at $7 billion, contributing to the persistent volatility. The earlier payment of $2 billion to clear part of the backlog of matured foreign exchange obligations to Deposit Money Banks was a significant step in this direction. These efforts align with the CBN’s commitment to stabilising the forex market and boosting confidence in the Nigerian financial system.
These recent initiatives underscore the CBN’s proactive approach to forex market reform. The removal of exchange rate caps for IMTOs, introduction of prudential guidelines for banks, stern warnings against misleading information, and fulfillment of obligations to foreign airlines collectively represent a concerted effort to foster a transparent, stable, and efficient forex market in Nigeria. As the CBN continues to navigate challenges and implement strategic measures, stakeholders are encouraged to support these reforms for the collective benefit of the Nigerian economy.
The CBN reiterates its commitment to a transparent and well-functioning financial market. It warns against market manipulation and emphasises the importance of adherence to guidelines. The recent injection of funds into the aviation sector is expected to improve liquidity in the forex market, and the CBN encourages all market participants to support these reforms for the overall stability of the Nigerian foreign exchange market.
