Sylvia Duruson
To strengthen Nigeria’s foreign exchange market, a significant action is being taken. the Central Bank of Nigeria (CBN) has announced that International Money Transfer Operators (IMTOs) will now be permitted to sell foreign currency on the official window. This decision comes as the Nigerian naira experiences a period of relative stability against major currencies.
The CBN’s circular, released outlines that eligible IMTOs can now access the central bank’s window either directly or through authorized dealer banks. These transactions will be conducted based on the prevailing rates in the Nigerian Autonomous Foreign Exchange Market (NAFEM). The circular emphasizes that all diaspora remittances must be converted to naira upon arrival and matched with corresponding foreign currency inflows.
This latest policy adjustment is part of the CBN’s ongoing efforts to encourage remittance flows through official channels and diminish the influence of the parallel market. It follows a series of reforms implemented by the central bank in recent months, including a ban on street trading of dollars and a significant increase in capital requirements for Bureau de Change operators.
The CBN has been actively working to stabilize the foreign exchange market through various measures. These include allowing the naira to trade freely against the dollar and unifying multiple exchange rate windows. Additionally, the central bank has cleared a substantial $7 billion foreign exchange backlog, which had been a source of concern for investors and businesses.
While these reforms initially led to some gains for the naira, the currency experienced fluctuations. However, recent weeks have seen a relative stabilization of the exchange rate, attributed in part to increased foreign currency inflows. As of Monday, the naira was trading at 1,488 per dollar on the NAFEM window, according to the most recent data available. Parallel market rates were reported to be around 1,500 naira per dollar on the same day.
The foreign exchange situation in Nigeria is expected to receive a further boost with the anticipated $2.25 billion financial support package from the World Bank. This injection of funds is likely to improve foreign exchange liquidity in the market, potentially contributing to greater stability and accessibility of foreign currencies.
Nigeria’s economy, heavily dependent on oil exports, has faced challenges in recent years due to fluctuating global oil prices and production issues. These factors have contributed to pressure on the naira and foreign exchange shortages. The CBN’s latest move to involve IMTOs in the official forex market is seen as a strategic step to tap into the significant diaspora remittances that Nigeria receives annually.
By allowing IMTOs to participate in the official foreign exchange market, the CBN aims to increase transparency, improve liquidity, and provide more options for Nigerians receiving remittances from abroad. This policy change is expected to encourage more remittances to flow through official channels, potentially reducing the demand for foreign currency in the parallel market.
The success of this initiative will depend on various factors, including the continued stability of the naira, the overall performance of the Nigerian economy, and global economic conditions. As the policy takes effect, market observers and participants will be closely monitoring its impact on exchange rates, remittance flows, and the broader financial landscape in Nigeria.
