- The Central Bank of Nigeria (CBN) has issued a new directive, eliminating the initial cap on exchange rates quoted by International Money Transfer Operators (IMTOs).
- According to reports, the new directive is in response to suspected cases of excessive foreign currency speculation and hoarding in Nigerian commercial banks.
In a circular addressed to all authorised dealers, IMTOs, and the general public, the CBN has authorised relevant parties to quote exchange rates for naira payouts to beneficiaries based on the current market rate at the Foreign Exchange Market.
Transactions must now take place on a willing buyer, willing seller basis. This approach implies that market forces of supply and demand will determine Nigerian exchange rates rather than the initial set limit.
Recall that in a previous circular with reference TED/FEM/PUB/FPC/001/009 dated September 13, 2023, the CBN directed that IMTOs have to quote exchange rates for naira payouts to beneficiaries within a set limit. The limit was -2.5% to +2.5% around the previous day’s closing rate of the Nigerian Foreign Exchange Market.
This former CBN policy was the federal government’s attempt to stabilise the continuous exchange rate depreciation and maintain consistency in the market. However, the new circular marks a change in that policy.
Per CBN’s verdict, the new circular titled Removal of Allowable Limit of Exchange Rate Quoted by the International Money Transfer Operators effectively superseded the one dated September 13. The Nigerian commercial bank regulator explained that the new development is in a bid to liberalise the Nigerian Foreign Exchange Market, making it more flexible.
This new policy is expected to make the Nigerian Foreign Exchange Market more transparent and encourage market-driven exchange rates. Consequently, customers who conduct international money transfers may face increased pricing competition.
This policy change is also suspected to be a move by the CBN to nudge IMTOs to bring their foreign exchange (forex) supply home instead of keeping it abroad, thereby increasing forex inflow into Nigeria.
While the new market-driven policy bodes well for the health of the country’s financial sector, it’s not without implications for the foreign exchange market in Nigeria, including the individuals and businesses that trade in it. Only time can tell the full extent of the impact of the new policy.