Market News

BY  Tony Chukwunyem

As part of its ongoing foreign exchange reforms, the Central Bank of Nigeria (CBN) has in the last few days rolled out new measures to ensure that the naira maintain its recent uptrend, writes Tony Chukwunyem 

Although the Trade and Exchange Department of the Central Bank of Nigeria (CBN) has been quite busy since the apex bank launched its foreign exchange reforms in June 2023, the last few weeks would undoubtedly rank among its busiest.

Reason: the regulator announced several new forex measures in quick succession, a move, analysts said, was clearly aimed at further enhancing exchange rate stability.

EFEMS

However, the recent measures could be said to have their origin in the Electronic Foreign Exchange Matching System (EFEMS), which the CBN launched on December 2, In the statement it issued on October 2, announcing the planned introduction of the EFEMS, the apex bank disclosed that there would be a 2-week test run of the platform in the month of November.

It also said authorised dealers would subsequently conduct all foreign exchange transactions in the interbank Fx market on the EFEMS, adding that the new system was expected to enhance governance, transparency and facilitate a market-driven exchange rate that would be accessible to the public.

“This development is expected to reduce speculative activities, eliminate market distortions and give the CBN improved oversight capabilities to effectively regulate the market.

“The CBN will publish real time prices and buy/sell orders data from the system, and in collaboration with the Financial Markets Dealers Association (FMDA), publish the rules for the EFEMS,” the statement said.

Initial guidelines

On November 27, the CBN released guidelines for the EFEMS, pegging the minimum foreign exchange trade on the platform at $100,000, with an incremental clip sizes of $50,000, and directing authorised dealers to deploy the Bloomberg BMatch as the EFEMS for their trading activities in the forex market from December 2nd, 2024.

“The Bloomberg BMatch platform will enhance the integrity and operational efficiency of the FX market by providing transparent and automated matching of trades leading to market efficiency and greater price discovery,” the apex bank said.

Revised guidelines

But, on November 29, the CBN issued another circular on the commencement of the EFEMS, which it said, superseded all previous key forex policy documents, such as the circular on the establishment of the Investors and Exporters’ (I&E) forex window in 2017, the operational changes to the forex market that it announced on June 14, 2023 and the revised guidelines for the operation of the Nigerian Interbank Forex market.

In addition, the new guidelines restricted all transactions in the NFEM to only authorised dealers and prohibited dealings with unlicensed with unlicensed intermediaries.

The guidelines also stated that licensed Bureaux de Change (BDCs) were permitted to buy forex from authorised dealers subject to the aggregate monthly cap stipulated by the CBN. Furthermore, according to the guidelines, all market participants were expected to adhere to the highest code of ethics and professional conduct in the NFEM in line with the Nigerian FX Code, which the CBN said at the time, it planned to launch early in 2025.

FX Code

In fact, although the naira has been largely stable against the greenback since October 2024 when the CBN unveiled plans to introduce the EFEMS, the local currency started strengthening significantly against the dollar (appreciating from N1,663.90 per dollar in early December 2024 to N1,536.72/$1) after the apex bank launched the FX Code on January 28.

Speaking at the event, CBN Governor, Mr. Olayemi Cardoso, who was joined by the Manag

This development is expected to reduce speculative activities, eliminate market distortions and give the CBN improved oversight capabilities to effectively regulate the market

ing Directors of deposit money banks ( DMBs) in launching the code, declared that the era of opaque practices was over, noting that the FX code is a binding commitment to accountability and transparency—that requires all stakeholders to play their part.

He stated: “We will not hesitate to act against any institution or individual that undermines the integrity of our financial markets.

The FX code is a binding commitment to accountability and transparency—and we must all play our part. Violations will be met with penalties and administrative actions.”

Recalling past era of forex exchange administration characterized by unwholesome practices, Cardoso described the FX code as a departure from the past and that it represents a ,”decisive step forward that set clear and enforceable standards for ethical conduct, transparency, and good governance in our foreign exchange market.”

He said: “We must not forget where we are coming from. The era of multiple exchange rates, which created privileges for a select few at the expense of most Nigerians, severely undermined market integrity.

“As an example, the $7 billion of FX backlogs that has taken over 12 months to verify has led to the discovery of multiple unethical and even illegal practices that we should not be proud of as a nation.

The forensic verification process is now near complete, and final settlements will be processed accordingly. Similarly, the period of unprecedented ways-and-means of financing inflicted significant damage on our economy, contributing to inflation, currency depreciation, and eroded public confidence.

These practices must never return. The FX code is a firm rejection of such distortions and an equally firm commitment to a future defined by fairness, trust and market driven principles.”

Waiver of non-refundable licence renewal fee for BDCs Twenty-four hours before it launched the FX Code, however, the CBN released a statement in which it announced that it has approved the waiver of 2025 licence renewal fee for existing Bureaux De Change (BDCs).

It said that the decision was in line with the ongoing transition to the new BDC regulatory structure. According to the statement, “any Bureau De Change that has paid for 2025 licence renewal is hereby advised to apply to the Director, Financial Policy and Regulation Department, Central Bank of Nigeria for refund to its account from which the payment emanated.”

BDCs to buy from banks

Analysts were still discussing what impact the waiver of the 2025 licence renewal fee would likely have on BDCs’ operations when the CBN on February 3 issued another circular in which it announced it had extended the period for the temporary permission it granted eligible BDC operators to access the NFEM for the purchase of FX from Authorised Dealer Banks (ADBs) from January 30, 2025 to May 30, 2025.

BDCs restricted to one authorised dealer bank However, last Wednesday, the apex bank released yet another circular in which it emphasised that a BDC can only purchase the $25,000 from only one ADB of its choice in a week.

Other highlights of the new circular include that, ADBs must sell the fx to BDCs at the prevailing day rate at the NFEM window and that the BDCs must sell the forex cash purchased from the ADBs and other sources, to forex end-users at a rate, “not exceeding one percent margin above the buying rate.”

Furthermore, the CBN stated that all ADBs must continue to render weekly returns to it on sales of forex to BDCs.

The apex bank also said that BDCs are required to render daily returns on forex purchases from ADBs and other sources, as well as sales (utilisation), on the Financial Institutions Forex Reporting System (FIFX).

In addition, it stipulated that BDCs can only disburse purchased FX for eligible transactions such as Business Travel Allowance (BTA) / Personal Travel Allowance (PTA), Overseas school fees and Overseas medical fees subject to a maximum of $5,000 per transaction, quarterly.

The regulator stressed that BDCs must maintain proper records of all transactions, which must show the Bank Verification Number (BVN) of the end-user and an endorsement of the amount disbursed in the International Passport of the beneficiary.