Key measures introduced by the CBN include the clearance of the $7 billion FX forward backlog, restrictions on banks’ FX holdings, limitations on dollar remittances by International Oil Companies (IOCs), and the removal of caps on FX transaction spreads. Additionally, the CBN eliminated allowable limits on exchange rates quoted by International Money Transfer Operators (IMTOs), provided IMTOs with access to Naira for diaspora remittance payments, restricted Personal and Business Travel Allowances (PTA/BTA) to electronic channels, and allowed Bureau de Change operators to access the official market through banks, enabling purchases of up to $25,000 weekly at prevailing rates.
To further enhance market efficiency, the CBN adopted the Bloomberg BMatch platform as its Electronic Foreign Exchange Matching System (EFEMS) for FX trading activities. According to the CBN, this platform is expected to reduce speculative activities, eliminate market distortions, and strengthen the CBN’s oversight capabilities. The Bloomberg BMatch system is designed to improve market integrity and operational efficiency by enabling transparent and automated trade matching, fostering greater price discovery.
In a move to consolidate these reforms, the CBN launched the Nigerian Foreign Exchange (FX) Code on January 28, 2024. This code, based on the principles of the Global FX Code and best practices from leading jurisdictions, aims to establish clear and enforceable standards for ethical conduct, transparency, and governance in the FX market. During the launch, CBN Governor Mr. Olayemi Cardoso emphasized the importance of the new framework, stating, “The FX Code represents a decisive step forward, signaling that business-as-usual practices will no longer be tolerated. Unethical behaviors and systemic abuses have eroded public trust in the past, and we are committed to ensuring such practices do not recur. Violations will be met with swift and decisive sanctions.”
The combined impact of these measures has been remarkable. By February 24, 2024, the Naira appreciated to its highest level in seven months, closing at N1,500 per dollar in the parallel market. This marked the first time since June 21, 2023, that the Naira traded below N1,500 per dollar. Notably, the gap between the parallel and official market rates, historically a destabilizing factor, was not only eliminated but reversed, with the official rate closing at N1,504 per dollar on the same day.
Analysis of the first seven weeks of the year revealed a 9.4% Year-to-Date (YtD) appreciation in the parallel market and a 2.2% YtD appreciation in the official market, with rates improving from N1,655 and N1,538.5 per dollar at the end of 2023 to N1,500 and N1,504 per dollar, respectively.
Taming Inflation and Spurring Economic Growth
With the Naira’s stabilization and improved forex market conditions, the CBN is now better positioned to address Nigeria’s historically high inflation rates. Governor Cardoso expressed confidence in achieving single-digit inflation and fostering economic growth through enhanced forex market stability. Speaking at the Monetary Policy Committee (MPC) meeting in February, he noted, “Confidence is gradually returning to our markets, indicating that we are on the right path. Stability is crucial for attracting investments, and as our currency becomes more competitive, we are witnessing increased interest from international investors.”
Cardoso reiterated the CBN’s commitment to orthodox monetary policies, emphasizing vigilance and a focus on reducing inflation from double-digit to single-digit levels. He also highlighted the potential for forex market stability to positively influence the prices of goods and services, citing recent macroeconomic developments such as the moderation in Premium Motor Spirit (PMS) prices.
Fiscal and Monetary Collaboration: A Key to Sustained Stability
A critical factor in maintaining the gains achieved in the forex market and achieving the CBN’s inflation targets is the collaboration between monetary and fiscal authorities. Governor Cardoso underscored the importance of this coordination during the recent Monetary Policy Forum, which brought together key stakeholders, including the organized private sector, Bureau de Change operators, and representatives from the fiscal sector, such as the Minister of Finance and Coordinating Minister of the Economy, the Minister of Budget and Planning, and the Minister of Trade and Industry.
Cardoso emphasized the need for regular and deepened dialogue between monetary and fiscal authorities to sustain and build on the progress made. “Coordination is essential to ensure that the gains we have achieved are not only maintained but also improved upon. This is a pivotal moment for Nigeria’s economy, and we must work together to secure a stable and prosperous future,” he stated.
The CBN’s proactive measures, combined with ongoing collaboration with fiscal authorities, signal a renewed commitment to economic stability and growth. As Nigeria navigates this critical juncture, the focus remains on fostering transparency, confidence, and sustainable development in the forex market and beyond.