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FX market, naira, foreign reserves firm up on CBN policies - THE NATION
The naira and Nigeria’s foreign reserves saw significant gains last week, as the Central Bank of Nigeria (CBN)’s policy measures continued to positively influence the forex markets. In addition to maintaining exchange rate stability, the CBN has ramped up interventions, increasing FX supply to retail end-users, reducing market distortions, and ensuring effective foreign reserves management. These liquidity injections, along with improved compliance with FX regulations, have not only stabilised the naira in both official and parallel markets but have also sparked renewed interest from foreign investors in Nigeria’s economy, reports Assistant Business Editor, COLLINS NWEZE
The continued stability in Nigeria’s foreign exchange (forex) market has had a significant impact on both businesses and the broader economy. The Central Bank of Nigeria’s (CBN) timely interventions—through strategic policy measures and liquidity injections—have effectively curbed the naira’s depreciation, restoring stability to the forex market. As part of its commitment to maintaining exchange rate stability, the CBN recently injected $360 million through authorised dealers into the market. This move has helped to mitigate the risk of a sharper devaluation amid growing demand pressures.
The official FX rate stands at N1,530/$, while the naira trades at N1,580/$ on the parallel market. The Central Bank of Nigeria’s (CBN) robust interventions, including last week’s sale of $360 million to authorised dealers, continue to play a key role in stabilising the naira. Naira stability is further supported by inflows from Foreign Portfolio Investors (FPIs), significant contributions from International Oil Companies (IOCs), and the CBN’s previous $18.4 million interventions into the market. Additionally, there is renewed interest from FPIs in the FX market, driven by improved market confidence, a more efficient forex framework, and stronger macroeconomic conditions.
Analysts at Cordros Research reported that Nigeria’s gross FX reserves increased by $12.06 million week-on-week, reaching a total of $38.36 billion. This marks a reversal after nine consecutive weeks of decline. “Concerns about oil receipts underpinned by lower oil prices are likely to temper net FX inflows from Foreign Portfolio Investors, likely sustaining pressure on the naira. Nonetheless, CBN’s sustained market intervention and reduced market distortions are expected to prevent a sharp depreciation of the naira,” the report said.
Philip Sigwart, Group CEO of Baobab Group, stated that the Nigeria forex market has turned a corner, with the restored stability now creating a favorable environment for more companies to invest in the economy. He revealed that, due to the improved business confidence and stability in the forex market, his company plans not only to inject new capital into its operations but also to increase lending to businesses. Sigwart, speaking from Baobab Group’s headquarters in Paris during a media briefing in Lagos, emphasised that the volatility in the forex market, which previously made planning and investment challenging for businesses, has been effectively addressed. He noted that now is the right time to invest and expand Baobab Group’s operations in Nigeria, with plans to grow to at least 100 branches and target a N1 trillion balance sheet.
CBN Governor, Olayemi Cardoso, explained that the Central Bank faced a significant backlog of over $7 billion in unfulfilled foreign exchange commitments, compounded by a fragmented FX regime with multiple exchange rates. This system created opportunities for arbitrage, which hindered much-needed foreign investment and contributed to the depletion of external reserves, which had fallen to $33.22 billion in December 2023.
To address these challenges, the CBN implemented critical reforms to unify Nigeria’s exchange rate, eliminating market distortions and restoring transparency. According to Cardoso, the FX unification has enabled the apex bank to clear the outstanding $7 billion in foreign exchange obligations, boosting business confidence across various sectors—from manufacturing to airlines—by providing the certainty needed for long-term planning and investment.
To further enhance the functionality of the foreign exchange market, the CBN introduced an electronic FX matching system, which has proven effective in other markets. Governor Cardoso explained, “The introduction of the electronic matching system will correct market distortions by enhancing the price discovery process. Additionally, it will significantly boost the Central Bank’s oversight and intervention capabilities, ensuring a more stable and transparent foreign exchange market.”
Cardoso emphasised that while the Central Bank will continue to lay the foundation for price stability and create a conducive policy environment, the role of banks in this process is crucial. He stressed that the collaboration between the CBN and financial institutions will be key to ensuring sustained stability and fostering growth in the foreign exchange market. “An FX market defined solely by when and how the Central Bank buys or sells dollars is inadequate for the needs of a dynamic economy like Nigeria’s. Now is the time for banks to step up to their intermediation and market-making responsibilities, providing customers with the right solutions to run their businesses and manage risks effectively,” he said.
Many stakeholders have praised the CBN’s reforms, which have not only stabilised the exchange rate but also attracted a new wave of investment into the economy. Aminu Gwadabe, President of the Association of Bureaux De Change Operators of Nigeria (ABCON), credited the ongoing stability of the naira against the dollar and other global currencies to the CBN’s policies. Gwadabe highlighted key policies such as the Foreign Exchange (FX) Code, increased investor confidence and foreign direct investment-supporting initiatives, all of which are effectively curbing the activities of FX speculators.
Gwadabe explained that the implementation of the FX Code is comprehensively addressing various aspects of market conduct and practices. For example, the policy authorises the CBN to establish and enforce directives that set the standards for financial institutions regarding how FX transactions should be conducted. He emphasised that the FX Code further promotes transparency and accountability in the market, helping to sustain the stability and rally of the naira over time. Gwadabe also expressed his support for the CBN’s position, stating that all institutions engaged in the foreign exchange market must submit a detailed implementation plan to the CBN, outlining how they will fully comply with the FX Code.
These plans are expected to be formally approved and signed by the institution’s board of directors. Additionally, the plans must be accompanied by relevant extracts from the board meeting where the plan was reviewed and endorsed, ensuring full transparency and accountability in the implementation process.
CEO, Countryside Markets Limited, Stevens Michael, said: “For me, the whole idea is just to ensure that there is a lot more sanity in the foreign exchange market because certain characters have really created a whole lot of problems over the years in the foreign exchange market. I think that is what the CBN is trying to do and the more we’re able to sanitise the markets, I think the more stability it will achieve in the foreign exchange market,” he said.
At the launch of the Nigeria Foreign Exchange Code (FX Code), Cardoso emphasised that integrity, fairness, transparency and efficiency are critical pillars for driving Nigeria’s economic growth and stability. He outlined that the FX Code is built on six core principles: ethics, governance, execution, information sharing, risk management and compliance, and confirmation and settlement processes. Cardoso explained that these principles align with international standards while also addressing the unique challenges faced within Nigeria’s foreign exchange market.
According to Cardoso, “The FX Code represents a decisive step forward, setting clear and enforceable standards for ethical conduct, transparency, and good governance in our foreign exchange market. The era of opaque practices is over. The FX Code marks a new era of compliance and accountability. Under the CBN Act 2007 and BOFIA Act 2020, violations will be met with penalties and administrative actions.”
Commercial banks are key stakeholders in the implementation of the FX Code. Analysts have therefore urged the CBN to establish robust compliance checks to ensure that banks—historically one of the weakest links in FX policy implementation—adhere to the new policy measures. While the CBN has secured the support and commitment of these banks, routine regulatory checks will be essential to sustain the positive market outcomes from the initiative.
The formal signing by participating banks symbolises a unified effort to promote transparency and trust. However, it is crucial for the apex bank to take steps that ensure the banks not only make commitments but also match their words with tangible actions.
Issued as a guideline for the foreign exchange market, the FX Code is backed by the authority of the CBN Act of 2007 and the Banks and Other Financial Institutions Act (BOFIA) of 2020. These legislative instruments grant the CBN the power to establish and enforce directives regarding the standards that financial institutions must follow in conducting foreign exchange business in Nigeria. The FX Code, therefore, serves as an official directive that all market participants are expected to adhere to in their operations. As part of the compliance requirements, market participants must conduct a self-assessment of their adherence to the FX Code and submit a report detailing their level of compliance to the CBN by January 31, 2025.
Following this, all institutions engaged in the foreign exchange market must provide the CBN with a detailed implementation plan outlining how they intend to achieve full compliance with the FX Code. This plan must be formally approved and signed by the institution’s board of directors and accompanied by relevant extracts from the board meeting where the plan was reviewed and endorsed. In addition to the FX Code, the apex bank also introduced the Electronic Foreign Exchange Matching System (EFEMS), a system that has proven effective in other economies in enhancing the functionality of the foreign exchange market. The introduction of EFEMS aims to streamline FX transactions, improve transparency and facilitate better price discovery, contributing to a more efficient and stable market.
The EFEMS was introduced to address forex market distortions, eliminate speculative activities, and instill transparency. Commonplace in both developed and developing markets, the EFEMS provides real-time information on currency rates, trading volumes, and market activity, thereby promoting a more efficient and transparent market environment. In line with this initiative, the CBN recently issued a directive requiring all banks operating in the interbank FX market to adopt the Bloomberg BMatch system for trading. The platform, which became operational on December 2, 2024, is designed to enhance transparency and operational efficiency, further supporting the stabilization and development of Nigeria’s FX market.
The CBN also issued comprehensive guidelines for the operations of the interbank foreign exchange (FX) trading system via EFEMS, setting the minimum tradable amount at $100,000, with incremental clip sizes of $50,000. This structure aims to promote transparency and efficiency in the FX market. According to the CBN, the EFEMS initiative is designed to ensure “transparent, fair and efficient FX trading, minimise counterparty risks, and enforce compliance with CBN regulations,” thereby enhancing the stability and integrity of Nigeria’s foreign exchange market.
Between December 2, when the new electr
onic trading platform commenced, and December 10, 2024, the naira gained N147.69 against the dollar in the official market. The naira also appreciated substantially at the parallel market during this period, reflecting the positive impact of the new trading platform on the FX market.
CBN’s policies support remittances inflows
As part of its efforts to boost diaspora remittances and support naira stability, the CBN recently introduced two new financial products aimed at serving Nigerians living abroad. The Non-Resident Nigerian Ordinary Account and the Non-Resident Nigerian Investment Account were created to streamline remittances, encourage investments, and foster financial inclusion among Nigerians in the diaspora. These products are designed to facilitate easier financial transactions, promote savings, and strengthen economic ties between Nigeria and its global diaspora community. It said, “The Central Bank of Nigeria is pleased to inform the general public of the introduction of the Non-Resident Nigerian Ordinary Account and Non-Resident Nigerian Investment Account targeted at Nigerians in diaspora.”
The initiative is also expected to provide a secure and efficient platform for managing funds and investing in Nigeria’s financial markets. Since the beginning of this year, eligible Non-Resident Nigerians (NRNs) have continued to have the opportunity to open any of the Non-Resident Nigerian accounts. The Non-Resident Nigerian Ordinary Account is specifically designed to facilitate remittances by enabling non-resident Nigerians to send foreign earnings into Nigeria and manage funds in either foreign currency or naira. This account supports deposits from various sources, such as salaries, allowances, and dividends, while also allowing spending on family maintenance, education and healthcare, thus promoting financial inclusion and supporting the needs of NRNs.
On the other hand, the Non-Resident Nigerian Investment Account offers NRNs an opportunity to invest in Nigeria’s financial markets, including foreign currency-denominated bonds, fixed deposits, and local assets such as equities, government securities, and mortgage products. The CBN explained that both accounts provide currency flexibility, allowing holders to maintain balances in either foreign currency or naira. Account holders will also have the ability to convert funds between the two currencies at prevailing exchange rates through authorized dealers, further enhancing the accessibility and functionality of these accounts for Nigerians abroad.
The Non-Resident Nigerian Investment Account was designed to promote investments in Nigeria’s financial instruments, such as the Diaspora Bond, and encourage active participation in the country’s economic development. The CBN stated that the introduction of these accounts will help harness the economic potential of Nigerians in the diaspora by boosting remittances and fostering investments in critical sectors, thereby supporting national growth and stability. Through these accounts, the CBN aims to deepen financial inclusion and strengthen the ties between Nigeria and its global diaspora community.
These measures, along with granting licenses to new International Money Transfer Operators (IMTOs), implementing a willing buyer-willing seller model, and enabling timely access to naira liquidity for IMTOs, are designed to further enhance the efficiency and transparency of Nigeria’s remittance inflows. Diaspora remittances are a vital source of foreign exchange for Nigeria, complementing both foreign direct investment and portfolio investments.
The CBN’s initiatives have driven continued growth in these inflows, aligning with its goal of doubling formal remittance receipts within a year. As a result, remittances in the economy are expected to increase, fuelled by the CBN’s ongoing efforts to bolster public confidence in the foreign exchange market, strengthen a robust and inclusive banking system, and promote price stability—critical factors for sustained economic growth.
In a report titled “Diaspora Remittances: The Power Behind Africa’s Sustainable Growth,” Mohamed Touhami el Ouazzani, Regional Vice President of Africa at Western Union, emphasised that while remittances can be measured by the movement of money, their true impact is seen in the lives they change. He highlighted that in 2023 alone, $90 billion flowed into Africa from its global diaspora, an amount that rivals the Gross Domestic Product (GDP) of entire nations. This underscores the crucial role of remittances in driving economic development and improving the livelihoods of millions across the continent.
He added that remittances symbolise deep ties that keep communities connected across borders. “Families with a breadwinner working abroad depend on these funds to provide vital support for day-to-day needs. They also build the foundation for broader financial stability.
“Beyond their immediate impact, remittances are powerful drivers of economic change. They fuel infrastructure development, spur entrepreneurship, and promote financial inclusion – all essential for long-term economic development. Ghana’s National Financial Inclusion and Development Strategy (NFIDS) is simplifying access to remittances, while countries like Kenya, Ethiopia and Nigeria are tapping into diaspora bonds to fund infrastructure and other national projects,” he added.
For remittances to be truly transformational, it begins with understanding and meeting people’s aspirations. Ensuring that individuals who strive for more can send and receive funds, regardless of their financial status, is crucial. It’s essential to cater to diverse needs, providing accessible, reliable, and affordable financial services to empower people and help them achieve their goals. By doing so, remittances can play a key role in fostering economic inclusion and supporting sustainable development across communities.
“In a continent renowned for its entrepreneurial spirit, offering multiple channels for remittance access is key. Whether through bank accounts, digital wallets, mobile money apps, or cash pickups, this flexibility ensures that funds are delivered in ways that best suit local realities. Providing innovative and inclusive solutions empowers individuals to not only manage their immediate needs but also to invest in long-term growth opportunities,” he added.
According to him, every remittance is a seed of change – a deliberate investment in a future where borders blur. Each transfer represents more than just money; it is a step toward greater global connectivity and a catalyst for positive transformation in the lives of individuals, families, and entire communities. By fostering these connections, remittances help bridge gaps and create opportunities, contributing to long-term growth and prosperity.
“The future of remittances in Africa transcends mere financial support. By strategically directing funds into sectors that need them most, Africa’s diaspora is not just sending money home; they are building resilient economies and challenging traditional models of progress.
“This power demands that we unite with purpose, reimagine prosperity and empower future generations. The question then becomes whether we are prepared to unlock the continent’s true potential and reshape the global narrative of success,” he stated.
Understanding diaspora remittances
Globally, Nigeria is among the leading countries that attract funds from migrant workers, alongside other nations such as Pakistan, Canada, the USA, Australia, and Vietnam. Nigeria stands out as one of the countries with a large number of migrant workers worldwide, who send remittances back home. These funds, estimated at $23 billion annually, serve as a reliable source of foreign exchange for the domestic economy. Diaspora remittances play a crucial role in supporting the country’s foreign currency reserves, contributing to economic stability, and improving the livelihoods of millions of Nigerians.
Such remittances remain a cheap source of funding because they do not need to be repaid with interest. Instead, they go directly into improving lives by contributing to the construction of houses, payment of school fees, healthcare, and other essentials, all of which add significant value to the economy. Diaspora remittances represent household income from foreign economies, arising mainly from the temporary or permanent movement of people to those economies. These remittances can be both cash and non-cash items that flow through formal channels, such as electronic wire transfers, or informal channels, like money or goods carried across borders. They play an essential role in supporting the livelihoods of families, boosting local economies, and providing a reliable stream of foreign exchange for the receiving country.
Meanwhile, recent data from the International Monetary Fund (IMF) under its Currency Composition of Official Foreign Exchange Reserves (COFER) points to the rise of nontraditional reserve currencies, including the Australian dollar, Canadian dollar, Chinese renminbi, South Korean won, Singaporean dollar, and Nordic currencies. Stakeholders have agreed that the measures instituted by the CBN under Governor Cardoso have not only lifted the forex market and entrenched long-lasting stability but have also laid the foundation for sustainable economic growth. These reforms are seen as crucial steps in strengthening Nigeria’s economic resilience and ensuring a more balanced and diverse foreign exchange environment.
