Market News

By Bamidele Ogunwusi

The fresh directive by the Central Bank of Nigeria (CBN) to Inter­national Money Transfer Oper­ators (IMTOs) to henceforth pay inbound remittances in naira has been described as one that will further worsen the crisis in the foreign exchange market.

The CBN said payments are now to be made in naira in re­spect of inbound transfers of re­mittance services from outside the country.

Experts who spoke with Daily Independent argue that the CBN should face options were foreign exchange is made available in the foreign exchange market rather than what will discourage it.

The CBN in a circular by the Di­rector, Financial Markets Depart­ment, Dr. Omolara Omotunde, with reference no FMD/ DIR/PUB/CIR/001/012 and addressed to ‘All Au­thorised Dealers’, cleared the way for the banks to sell foreign exchange at rates determined by them, as part of the strategy by the apex bank to stabilise the naira.

Consequent upon the removal of the caps on the spread on interbank foreign exchange transactions, the banks are now free to estab­lish their own prices based on supply and demand.

This allows the market to determine what it consid­ers a fair rate for foreign currencies, particularly the US dollar.

The banks now have more flexibility to sell FX to anyone they choose, and this change could result in a quicker and more conve­nient access to foreign cur­rency for businesses and individuals.

The CBN said authorised dealers are to continue to conduct their foreign ex­change transactions on a ‘willing buyer and will­ing seller’ basis and are to “strictly adhere to high ethical standards in their dealings in the foreign ex­change markets. This in­cludes but not limited to adopting appropriate price disclosures and transparen­cy for transactions”.

However, the CBN is demanding transparency from the banks, requiring them to clearly display their prices, refrain from deceiving customers, and report all transactions to it (CBN).

The CBN expects this new approach to promote fair­ness and efficiency in the FX market, eliminate artificial distortions and ensure that everyone can access FX at a reasonable price.

It was gathered that the apex bank also intends to encourage greater foreign investment by simplifying the process of buying and selling FX, attract more for­eign investors with a view to stimulating the national economy and discouraging the use of the black market.

With the banks deter­mining their own prices, customers may find better deals on FX compared to the previous system while customers can compare the prices offered by different banks as prices are set by the market.

Investigations by Dai­ly Independent revealed that International Money Transfer Operators (IM­TOs) have started com­plying with the January 31, 2024, CBN directive stopping them from dollar transfers to Nigeria. These include WorldRemit and Western Union.

The Head, Financial In­stitutions Ratings at Agus­to, Mr. Ayokunle Olubunmi, said the CBN’s directive removing the caps on the spread on interbank foreign exchange transactions is a good move but stressed that the decision to allow IMTOs determine the value of the naira and also pay remit­tances in naira may likely be counter-productive.

He said, “Since the de­sire of the bank is to see forex in the market and encourage those hoarding them to push them out, the idea of receiving diaspora remittances in naira will discourage the desired availability of forex in the market.

“The most important thing for now is even the supply. The question is, is there even enough dollars to sell?

“What people should realise is that there are people who have dollars to sell and because the rate is not attractive, they are not selling but the good thing about the directive is that once you can get anybody to agree on a rate, you sell.

“The thinking of the CBN is that if you can in­centivise people to bring the dollars that they have, then the prices will drop.

“Will this happen? I don’t think the dollars they will be willing to sell will bring succour to the market and bring down the value of the dollar”.

On paying remittances in naira, Olubunmi said, “I was shocked when I saw the circular; I am even sur­prised why they came out with that. Let’s wait and see what will happen with this”.

Stephen Iloba, an econo­mist, said these two circu­lars are demonstration of the leadership of the CBN desires to find a quick fix to the devaluation of the naira.

He said, “The Cardo­so’s leadership at the CBN should be aware that there can never be a quick fix to a problem that has its roots in many years of inappro­priate policies by the bank and lack of action by the fiscal authority.

“I can see the enthusi­asm of Cardoso and his team but the move to pay re­mittances in naira will not encourage the recovery of the naira. Most Nigerians in diaspora may channel their funds to sectors that will not have direct impact on the economy like buy­ing houses in countries like Dubai and other plac­es instead of sending their money to Nigeria.”

While addressing Senate Joint Committee on Bank­ing, Insurance and other Financial Institutions, Fi­nance and National Plan­ning, last week, Cardoso said the nation’s “foreign exchange market is cur­rently facing increased de­mand pressures, causing a continuous decline in the value of the naira.

“Factors contributing to this situation include speculative forex demand, inadequate forex supply, increased capital outflows, and excess liquidity.

“The shift to a mar­ket-driven exchange rate was intended to create a stable macroeconomic en­vironment and discourage currency hoarding.

“However, short-term volatilities are attributed to arbitrage and speculation.

“To address exchange rate volatility, a comprehen­sive strategy has been initi­ated to enhance liquidity in the FX markets.

“This includes unifying FX market segments, clear­ing outstanding FX obliga­tions, introducing new op­erational mechanisms for BDCs and IMTOs, enforcing the Net Open Position lim­it, Open Market Operations and adjusting the remuner­able Standing Deposit Facil­ity cap among others.

“These measures, aimed at ensuring a more mar­ket-oriented mechanism for exchange rate determi­nation, will boost foreign exchange inflows, stabilise the exchange rate, and mi­nimise its pass-through to domestic inflation.”

He said the measures already put in place by the bank have started yielding early results with “signifi­cant interest from foreign portfolio investors (FPIs) that have already begun to supply the much-need­ed foreign exchange to the eco