Market News

The Central Bank of Nigeria (CBN) recently took a major step to enhance transparency and boost market confidence with the launch of the Nigeria Foreign Exchange Code (FX Code) in Abuja. The FX Code policy implementation has led to the dumping of the dollar by traders hoarding the greenback for speculative purposes. Analysts predict a sustained naira rally over renewed confidence in the market, writes Festus Akanbi.

He said that the FX Code was built on six core principles: ethics, governance, execution, information sharing, risk management and compliance, as well as confirmation and settlement processes.

These principles, he explained, aligned with international standards while addressing the unique challenges 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.”

FX Code Impact in Market Operations

The naira has sustained a rally at both official and parallel markets since the launch of the FX Code launch, with the local currency, reaching its strongest level in nearly eight months.

Analysts said FX Speculators lost over N10 billion in the current naira rally and will record more losses as the greenback holders dump it in the open market.

One forex dealer said he offloaded dollar stockpiled for months, over fears of losing more funds.

 “We are happy the naira is stabilising at both the official markets, but sad over capital losses. This is not the time to hoard the dollar because the naira is fast finding its feet,” Abdul Abiodun, FX trader based in Marina Lagos, said. 

Other FX operators said the era of forex speculation and distortions in the domestic foreign exchange market came to an end with the ongoing implementation of the FX Code.

The ongoing rally of the naira continued from last week’s success story. Analysts from Cordros Securities, said the naira last week strengthened significantly, appreciating by 3.8 per cent week-on-week to N1,474.78/$ at the Nigerian Autonomous Foreign Exchange Market (NAFEM).

This sharp increase is attributed to the policies implemented by the CBN, especially the FX code, which have influenced market dynamics and contributed to the currency’s strengthening.

This latest movement marks a return to that range, reflecting the impact of recent monetary and foreign exchange measures introduced by the CBN to stabilise the currency and improve market confidence.

Managing Director, of Afrinvest West Africa Limited, Ike Chioke, said naira gained 4.3 per cent month-on-month against the greenback to close at N1,497/$1.00. Similarly, parallel market rate appreciated 1.7 per cent to N1,580.00/$1.00.

He projected a sustained positive naira performance this month, supported by CBN’s efforts at entrenching transparency in market operations. “In the new month, we expect the naira to remain on a positive trajectory bolstered by CBN’s effort at currency stability,” he said in an emailed note to investors.

The naira rally was also driven by inflows from Foreign Portfolio Investors (FPIs), substantial contributions from International Oil Companies (IOCs), and the CBN’s $18.40 million intervention to authorised dealers.

Other analysts also mentioned the renewed interest of Foreign Portfolio Investors (FPIs) in the FX market—driven by improved market confidence, a more efficient FX framework, and strengthening macroeconomic conditions—alongside the CBN’s sustained market interventions, is expected to continually support naira stability.

President, the Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, attributed the ongoing rebound of the naira against the dollar and other world currencies to the CBN’s policies.

Gwadabe hinged the naira rally to the newly implemented Foreign Exchange (FX) Code, rising investors’ confidence, and policies supporting more dollar inflows through diaspora remittances.

He backed the apex bank’s position that the FX Code is comprehensively addressing various aspects of market conduct and practice, it is not intended to be exhaustive.

He said the policy authorises the CBN to establish and enforce directives regarding the standards for financial institutions under which FX deals are to be conducted.

Gwadabe said the code will further entrench transparency and accountability in the FX market and continually sustain the naira rally.

He also backed CBN’s position that all institutions engaged in the foreign exchange market must also provide the CBN with a detailed implementation plan outlining how they intend to achieve full compliance with the FX Code.

These plans are expected to be formally approved and signed by the institution’s board of directors, and they must be accompanied by relevant extracts from the board meeting where the plan was reviewed and endorsed.

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 those characters have really created a whole lot of problems over the years in the FX 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.

The CBN has stated that while every effort has been made to ensure that the FX Code comprehensively addresses various aspects of market conduct and practice, it is not intended to be exhaustive.

Governor Cardoso also noted that the journey towards market reform is already yielding results. He stated, “The year 2024 was marked by structural reforms that sought to return the naira to a freely determined market price and ease volatility as several distortions were removed from the market.”

Beyond the foreign exchange market, the FX Code forms part of the CBN’s renewed focus on compliance across the financial sector. Its six guiding principles, alongside 52 sub-principles, were designed to become the benchmark for conduct across all participating institutions.

Banks role in code implementation

Commercial banks are major stakeholders in the FX Code implementation. Analysts have therefore called on the CBN to institute strong measures of compliance checks to ensure that banks, which in the past constituted one of the weakest links to FX policy implementation, comply with the new policy measures.

Although the apex bank has secured its support and commitment to policy implementation, routine regulatory checks will help sustain market gains.

The formal signing by participating banks, symbolising a unified effort to promote transparency and trust but the apex bank regulator should take steps that guarantee that the lenders match their words with action.

Understanding FX Code Rules

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 empower the CBN to establish and enforce directives regarding the standards 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 observe in their operations.

As part of 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.

Following this, all institutions engaged in the foreign exchange market must also provide the CBN with a detailed implementation plan outlining how they intend to comply with the FX Code fully.

Analysts insist that these measures under Cardoso have not only lifted the forex market and entrenched long-lasting stability but laid the foundation for sustainable economic growth.